Fear and Loathing at the FDIC

Eakinomics: Fear and Loathing at the FDIC

I don’t know about you, but when I think about the Federal Deposit Insurance Corporation (FDIC) my mental image is Fidelity Fiduciary Bank from Mary Poppins. I can’t help it. Weirdly, however, in one of those mash-ups of reality and fiction, a modern-day Michael Banks has attempted to blow up the FDIC. Here’s the basic play-by-play.

At present, the Board of the FDIC consists of Trump-appointee Jelena McWilliams and three Democrats: Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB); Michael Hsu, Acting Comptroller of the Currency; and Martin Gruenberg, an Obama-era holdover. In advance of the Board’s first meeting, last Thursday Chopra and Gruenberg published a blog post announcing that the FDIC board had voted to review the FDIC’s standards for bank mergers. The post also included a draft Request for Information (RFI).

That’s when things went sideways. First, the blog post was on the CFPB website, not the FDIC’s. And the RFI can only be described as signaling an overthrow of current merger standards. Meanwhile, simultaneously, the FDIC released on its website a statement indicating that there had been no vote and the RFI had not been approved. Upon the heels of these events, there was lots of finger-pointing and competing legal theories: A) That only the Chair could set the agenda, or B) that the Directors had the votes and the right to approve the RFI (and anything else). And just to confirm that this was an attempted coup and not a case of spontaneous governance combustion, there magically appeared an op-ed in the New York Times giving full-throated progressive approval of the move and containing the breathtaking assertion: “Beneath the surface, however, this battle is about much more than bank mergers: It is actually a fight over the White House’s entire economic agenda.”

Certainly it is a lot of drama (McWilliams was reportedly on the nine-hour flight to Switzerland during the coup). And definitely it has provided the D.C. financial regulation nerd community with some much-needed gossip. But there is a larger issue at stake, if not the “White House’s entire economic agenda.” This is another skirmish in the ongoing battle over the use of the consumer welfare standard to guide competition policy and merger and acquisition approvals. If a merger is in the interests of consumers, it should be approved. If not, the reverse. And that's not even getting into the breathtaking precedent these actions set of sidelining Senate-confirmed agency heads from their own agency policy.

The consumer welfare standard imposes a discipline and focus on the analysis of mergers and acquisitions. Progressives are proponents of the “neo-Brandeis” movement (aka “hipster antitrust”) that wants to use a variety of metrics – size, market concentration, etc. – as criteria for denying mergers, without the hard work of tying them to consumer outcomes. The battle has already begun at the Federal Trade Commission – which has jettisoned the consumer welfare standard – and will doubtless show up at every regulator at some point in the near future.

Stay tuned for more soon.