President-elect Joe Biden has selected two veteran regulators, heavily backed by progressive Democrats, to lead two important Wall Street watchdogs. This signals that his administration is planning strict oversight after four years of light-touch policies under the appointment of President Donald Trump.
Former chairman of the Commodity Futures Trading Commission, Gary Gensler, will be named head of the Securities and Exchange Commission, and Federal Trade Commission member Rohit Chopra will be named head of the Consumer Financial Protection Bureau, Biden's transition team said Monday.
“Our government will start immediately to provide immediate and urgent aid to the Americans. Address the overlapping crises of COVID-19, the historic economic downturn, systemic racism and inequality, and the climate crisis; and make this government work for the people it serves, ”Biden said in a statement to Bloomberg News. "These tireless officials will be an integral part of our agenda to help rebuild better – and I am confident that they will help make meaningful change and move our country forward."
The selection follows weeks of intra-party arguments over financial regulation positions between moderate Democrats and those on the left of the party who want to see a sharp departure from pro-business policies promoted during the Trump administration. This is bad news for the banking industry, which has braced itself for the prospect of stricter rules since Biden's election in November.
Gensler, 63, is a former Goldman Sachs Group Inc. partner who made a name for himself as a scourge on Wall Street for promoting derivatives regulation at the CFTC during the Obama administration. Chopra, 38, is an acolyte for Massachusetts Senator Elizabeth Warren who helped her set up the CFPB before running for office.
Both candidates must be ratified by the Senate, and the SEC and CFPB will likely be under interim leaders until this process is completed.
Alex Edelman / Bloomberg
The chances of Gensler and Chopra winning affirmation were greatly improved by the Democrats, who won two Senate elections in Georgia this month, resulting in a 50:50 split. The new Vice President, Kamala Harris, will hold the tie if all Republicans are against Biden's Treasury. This could undo all efforts by the powerful banking lobby to block Gensler and Chopra, whose nominations would be before the Senate Banking Committee.
Rohit Chopra, if confirmed, Gensler would take over an agency that some Democrats say has gotten too comfortable with the banking industry. He would need to deal immediately with market disruptions arising from the coronavirus pandemic and the escalating US feud with China over audits.
"Gary Gensler is a proven advocate of regulatory reform and brings deep expertise to the markets," said former SEC commissioner Robert Jackson in a statement. "The SEC and the nation will benefit from his wisdom and leadership," said Jackson, who was recognized as a candidate for the agency's top job.
Democrats will expect Gensler to push for stricter enforcement and higher fines for financial firms and executives accused of wrongdoing. He will also face pressure to press companies to disclose policy issues, climate change risks, and diversity and inclusion.
Gensler urged an aggressive implementation of the post-crisis Dodd-Frank Act and its provisions calling for reforms to the derivatives market. He convinced Progressive because he insisted on a harsh version of the Volcker Rule, which banned proprietary trading by Wall Street firms, and strong opposition from financial firms like Goldman, JPMorgan Chase & Co. and Citigroup Inc.
Under Gensler, the CFTC, long considered a backwater, became a major regulator on Wall Street. At the same time, his persistent style exhausted some employees and ultimately contributed to a push for union formation.
This approach could be a challenge for Gensler at the SEC, which is more than five times the size of the CFTC. A person at the SEC, who asked to remain anonymous, said staff there discovered that morale had dropped during his tenure as the CFTC. A survey of federal employees at the time named the derivatives regulator as one of the worst employers among small agencies, giving it bad marks for work-life balance, pay, and leadership.
Still, few dispute the agency's findings while in charge. Gensler pioneered severe new restrictions in the OTC derivatives markets. He oversaw a number of new rules and enforcement actions. Many of the world's largest banks paid billions in fines for counterfeiting an interest rate that valued everything from complex derivatives to mortgages.
At CFPB, Progressives will be reaching out to Chopra to revive a regulator they say has become a toothless version of the agency he helped Warren build. During his first time at the agency, he was ombudsman for student loans. This experience could be useful in keeping Biden's promise to crack down on private lenders who mislead borrowers.
The Progressive Change Campaign Committee, hosted by Warren, said Chopra's selection was "a great win for consumers and a sign that executive power is being used to produce tangible results for the American people."
Part of the reason Chopra was chosen, according to proponents, is that on day one it could start overturning some of Trump's policies to ensure that the CFPB refocuses on helping consumers deal with the complexities of the financial system.
Since he is already a Senate-approved official, Chopra could become the CFPB chief immediately under federal law to fill temporary positions. He would be able to stay with the FTC while holding the CFPB post for about 300 days.