FDIC’s No. 2 Hoenig Finishes Term as Agency Shifts to Trump Era

By Lydia Beyoud

Thomas Hoenig will step down on April 30 from his position as vice chairman with the Federal Deposit Insurance Corp. after serving a six-year term, the agency announced April 27.

“He is a regulators’ regulator,” Arthur Wilmarth, professor of law at the George Washington University Law School, told Bloomberg Law. “He’s seen not just the last crisis, but the last two crises” in banking and finance, Wilmarth said.

That experience shaped Hoenig’s regulatory stance on issues related to higher capital requirements for “megabanks” to fend off systemic risks, to deeper scrutiny of large banks’ loans and balance sheets, Wilmarth said.

“He’s not deferential to even the largest bankers,” Wilmarth added.

Conversely, the welfare of small and midsize banks were a primary concern for Hoenig. In his last major policy speech on March 28, Hoenig expressed fears that a failure to offer “meaningful regulatory relief” to small and midsize banks would spur further consolidation in the industry.

The Conference of State Bank Supervisors called Hoenig “a voice of reason for community banks,” according to a statement from CSBS President and CEO John Ryan. "[W]ith his leadership, state regulators have been able to better focus their efforts on safety, soundness and economic development on behalf of the consumer and business alike,” Ryan said.

Industry Shift

Hoenig joined the FDIC in 2012 after serving as president of the Federal Reserve Bank of Kansas City for 20 years. “He came to power at the FDIC at the height of the anti-bank populist movement,” and in many ways was seen as the future mold of a Republican bank regulator, Edward Mills, Washington policy analyst for Raymond James, told Bloomberg Law.

That all changed in 2017 when President Donald Trump began to nominate individuals from within the banking industry to oversee the financial sector, Mills said.

Hoenig’s departure now leaves the FDIC Board of Directors with a single member from the agency, Chairman Martin J. Gruenberg, a holdover from the Obama administration.

President Trump’s nominee to lead the agency, Jelena McWilliams, an executive at Fifth Third Bancorp and a former Senate Banking Committee chief counsel, is still waiting for a Senate confirmation vote. The Senate Banking Committee approved her nomination Feb. 8 by a vote of 24-1.

McWilliams’ leadership of the agency could usher in a new era for the FDIC.

As the agency on the hook for insuring bank deposits, the FDIC has earned a reputation for risk aversion since even before the 2008 financial crisis. Critics have said that’s led to a lack of innovation and competition in the banking sector.

Industry and consumer groups are waiting to see whether McWilliams will usher in new thinking at the FDIC that could lead to a surge in charters for new banks and a broader range of bank services such as small-dollar lending. McWilliams will also decide whether the FDIC grants deposit insurance to fintech companies seeking bank charters.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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