Biden’s pick for bank regulator faces rocky Senate hearing over unorthodox research ideas
United States Committee on Banking, Housing and Urban Affairs
WASHINGTON — Saule Omarova, President Joe Biden’s pick to be comptroller of the currency — head of one of the nation’s top bank regulators — is expected to face a tough round of questioning Thursday from senators concerned by her academic research, which explores fundamental changes to the financial industry.
Republicans and at least one Democrat on the Senate banking committee are all but certain to grill the Cornell University law professor over unconventional ideas she’s advocated, including magnifying the power of the Federal Reserve to include consumer banking and sweeping checks to the power of banks such as JPMorgan Chase and Wells Fargo.
But Omarova said in an interview Tuesday that her critics have underestimated her ability to distinguish between academic exploration and the duties of a regulator.
While Republicans, including ranking member Sen. Pat Toomey of Pennsylvania, have long warned against recommending a candidate whose academic work calls to “end banking as we know it,” skepticism has also come from Sen. Jon Tester, a Democrat from Montana.
Just one Democratic defection on a committee vote to recommend her to the broader Senate would likely end her nomination to head the Office of the Comptroller of the Currency. And, even if she were to advance to the Senate with the committee’s endorsement, a single “nay” vote from Democratic ranks could doom her appointment.
Testimony is set to begin at 9:30 a.m. Thursday.
The comptroller regulates about 1,200 banks with total assets of around $14 trillion, or two-thirds of the entire U.S. banking system. Its representatives work with big banks to ensure lenders are abiding by federal law and providing fair access to financial services and otherwise examining bank management.
Omarova has drawn fierce opposition from both the GOP and banking industry lobbyists, who say her ideas promote an excessive role for the government that would hurt business at lenders large and small.
“Dr. Omarova would relegate community banks to ‘pass through’ entities that hold their deposits on behalf of the Federal Reserve, effectively eliminating the community banking model,” American Bankers Association President Rob Nichols said in October. “We respectfully — but strenuously — disagree with those positions and believe they are out of step with the role for which she is being considered.”
Asked about that characterization, Omarova said that her academic works are just that: exploratory and theoretical.
“I am not a caricature that I often see when I see coverage of myself,” she said via video chat Tuesday afternoon. “I know that difference between the job of an academic, and the freedom that academics have in terms of exploring ideas, … and the job of a regulator, which is very circumscribed.”
“There is a statutory mandate for the agency, there is a specific toolkit, there are goals that Congress has set for the agency,” she added. “The key that’s missing in all of these discussions is my understanding of that critical difference.”
Her supporters, including banking committee Chairman Sen. Sherrod Brown, D-Ohio, say warnings from the industry and Republicans are misguided, unfairly paint her as anti-bank and fail to acknowledge her decades of experience in banking law.
“More than 70 financial regulatory experts from across the political spectrum, including many former bankers, have endorsed her nomination,” Brown’s opening statement reads. “From growing up in the Soviet Union, to escaping to build a new life here, to enduring this last month of personal attacks with dignity, Ms. Omarova has demonstrated the strength and independence she’ll need to be an be a fair, impartial, and tough Comptroller.”
Omarova has explained that many of her academic papers were motivated by her interest in protecting American taxpayers from excessive risk-taking at lenders and prevent future bank bailouts like those seen during the financial crisis of 2007-2009.
Her supporters claim much of the criticism she faces is the product of discrimination based on where she was raised and educated. She grew up in Kazakhstan when it was part of the Soviet Union and is a graduate of Moscow State University. She later worked at the Treasury Department in the George W. Bush administration.
Wade Henderson, president of the Leadership Conference on Civil and Human Rights, wrote Tuesday that he is disappointed in what he categorized as “shameful and discriminatory public attacks on” Omarova.
“We would note that if Professor Omarova were a candidate for virtually any other job, discrimination on the basis of her national origin would violate Title VII of the Civil Rights Act of 1964 and numerous other civil rights laws,” he wrote in his letter to ABA’s Nichols and other banking-industry advocates.
Nichols insists that his grievances with Omarova’s candidacy “have nothing to do with her impressive personal background.”
Sens. Jon Tester, D-Mont., and Joe Manchin, D-W.Va.
Tom Williams | CQ Roll Call | Getty Images
Looking forward, Omarova said that if she’s confirmed she’d like to coordinate with the Federal Reserve and Federal Deposit Insurance Corporation to study how best to protect smaller banks in more rural areas of the country, such as upstate New York.
“Having a local bank that knows what small businesses on the ground need and can actually make a credit decision based on their understanding of who these people are and what they’re doing is such a bread-and-butter, American ingredient of economic prosperity and local job creation,” she said.
“I think it would be important to understand where the community banks may be overly burdened by various requirements,” she added.
Those comments may not be enough to persuade the Independent Community Bankers of America — a trade group representing thousands of small and mid-sized banks across the U.S. — which on Wednesday voiced its opposition to her candidacy.
In a letter to Brown and Toomey, the ICBA said its objection stems from a review of Omarova’s years of research, including an October article in which she explores the idea of placing consumers’ deposits at the Fed and licensing local banks and credit unions to “operate physical branches and ATMs on the Fed’s behalf and receive a fee for their services.”
It remains to be seen how her recent statements and writings will influence Democratic holdout Tester, a moderate and community bank advocate.
His office told CNBC in October that Omarova’s “past statements about the role of government in the financial system raise concerns about her ability to impartially serve” but that he looked forward to speaking with her one-on-one about his concerns.
Tester’s office confirmed that the two have since met and said the senator looks forward to hearing from her again on Thursday. A spokesman declined to say whether their meeting was enough to earn Tester’s support.
Even if Tester ultimately agrees to support Omarova, she could face a razor-thin vote in the broader Senate, split 50-50 between the two parties. That’s because Democratic Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona both told the White House that they had misgivings about her candidacy, according to Axios.
Sinema’s office did not reply to CNBC’s request for comment, and a representative for Manchin declined to comment.