Former Federal Deposit Insurance Corp. Chairman Sheila Bair expressed her concerns this week about the recent turmoil at the FDIC which led to Chairman Jelena McWilliams resigning prior to the end of her statutory term. The FDIC board, by law, is to be composed of five members, no more than three of which can be from the same political party.
Today, the FDIC board has just three members, all three of whom are Democrats and two of whom are ex officio members serving by virtue of their positions as the head of the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
The FDIC board currently has two vacancies due to the Biden administration’s failure to appoint two members from the Republican party. Chairman Bair urges the Biden administration to act swiftly to nominate two Republicans to serve on the FDIC board, which she believes will likely reduce the partisan battles at the FDIC. Chairman Bair also suggests that statutory terms be lengthened for board members at independent agencies, and the chairs of such agencies be protected from being forced out before the expiration of their terms.
These suggestions are worthy of consideration, to be sure, but I’m concerned some of them might well make the agencies less responsive to the mood and needs of the country.
For well over the FDIC’s first half century, its board had three members, no more than two of which could be from the same party. There were two appointed members plus the comptroller of the currency. I was appointed in 1978 as the Republican member of the FDIC board by President Carter. FDIC Chairman George LeMaistre, a Democrat, was replaced soon after by Irvine Sprague, a Democrat appointed by President Carter. The third board member was Comptroller of the Currency John Heimann, a Democrat.
This system was not perfect, and we had our disagreements, but it was collegial and highly efficient. We rarely had negative votes at the board, as we tried to work out compromises which are critically important to maintaining confidence in the banking system, particularly in perilous economic times like we faced during the 1980s when some 3,000 banks and thrifts failed and major banks throughout the country were teetering.
I disagreed with Chairman Sprague on many issues. But I rarely, if ever, cast a negative vote at a board meeting because I felt it was essential that we displayed unity when dealing with serious and complex banking issues, such as when we voted to bail out the largest bank in Pennsylvania in 1979. Despite reservations, I believed it would not have served the national interest for me to cast a negative vote on that rescue package.
When President Reagan defeated President Carter in 1980, I was eager to take over as chairman, as we foresaw massive problems ahead for the FDIC. But I remained as the minority director until the Treasury secretary recommended that President Reagan appoint me chairman in 1981. Irv Sprague and I literally changed offices on opposite ends of the FDIC’s sixth floor, and we served together on the FDIC board until I left at the end of 1985, two years past the end of my statutory six-year term.
This leadership arrangement at the FDIC was not perfect, but it was pretty close to it. Unfortunately, the powers that be in Washington came up with the very bad idea of adding two new members to the FDIC board, the head of a newly created Consumer Financial Protection Bureau plus a fifth board member to serve as vice chairman (to avoid 2-2 deadlocks). These thoughtless moves did nothing to strengthen governance at the FDIC, and instead turned the FDIC into a political battleground leading to the kind of partisan fighting we witnessed recently.
It is surely time for Congress to reform the FDIC, but not by continuing or extending the current failed governance structure. Let’s return to a three-member, bipartisan FDIC board consisting of two presidentially appointed members (one of whom will be designated chair by the president) plus the comptroller of the currency. The president will appoint the chair until a new president takes office. An outgoing chair will be able to remain on the board until his or her six-year term expires.
Our nation desperately needs a thoughtful and independent FDIC to grapple with swiftly changing financial markets and crises. It requires a proper governance structure to ensure it fulfills its mission of protecting our nation’s banking system so crucially important to our economy and the public.