Jo Ann Barefoot Quoted in Thomson Reuters: “Wall Street Agitator Hoenig gets Chance to Flex Muscle”
November 3, 2011
Thomson Reuters
Dave Clark
WASHINGTON (Reuters) – Thomas Hoenig likes to find Wall Street’s raw nerves and then hit them with a hammer.
Do we need large banks? “We must break up the largest banks.”
Will new capital standards put large U.S. banks at a competitive disadvantage? “That assertion is nonsense.”
How about the Volcker rule, much loathed by Wall Street? “We must expand the Volcker rule.”
Hoenig made these statements over the past year as the Kansas City Federal Reserve Bank president, a job that in his 20 years there gave him little direct impact on the oversight of Wall Street.
Now, however, he has been nominated to become the vice chairman of the Federal Deposit Insurance Corp, which under the 2010 Dodd-Frank financial oversight law has new powers to oversee the largest U.S. banks.
The Senate Banking Committee may hold a nomination hearing this month before senators leave for Thanksgiving. He was nominated for the job by President Barack Obama on Oct. 20.
If he is confirmed, as expected, the question is whether moving to Washington from Kansas City can help Hoenig make his verbal broadsides have real consequences for banking behemoths.
Analysts said it is unlikely that Hoenig would have accepted the nomination if he did not believe he could wield some power.
“I don’t think he’s a guy looking to take this job to send his kids to college,” said Karen Petrou, managing partner of Federal Financial Analytics.
Ruffling feathers would be nothing new for Hoenig.
He was outspoken in his criticism of the Fed’s unprecedented attempts to support the struggling U.S. economy in recent years and argued it could lead to a surge in inflation. He was the lone dissenter against easy money policies at every Fed meeting in 2010.
At the Kansas City Fed, Hoenig represented an area of the country more concerned with the impact of government policies on smaller banks and businesses than on the world of high finance.
But Hoenig faces many challenges in the new post if he aims to be more than a feather-ruffler.
The FDIC vice chair has not historically been a seat of power.
It has no real legal authority other than a vote on the five-member FDIC board.
As the No. 2 at the agency, much of what he could do would largely be determined by what the man nominated to be the No. 1, Martin Gruenberg, delegates to him.
“I think it is going to significantly depend on the relationship between the chair and the vice chair,” said Kevin Petrasic, a banking lawyer at Paul Hastings.
Gruenberg keeps a low profile and has spent his career in Washington, first as a Senate staffer and then as an FDIC board member starting in September 2005.
He is known as someone who works cooperatively with other regulators.
In addition, while the FDIC has gained new powers, it is not the top regulator of Wall Street banks — something that falls more to the Federal Reserve and the Office of the Comptroller of the Currency.
But analysts said that given his high profile in banking circles, Hoenig, who declined an interview request, has a good chance of leveraging the post into one of influence.
“I think he is going to have a pulpit and I think he will use it effectively,” said Brian Gardner, an analyst with Keefe, Bruyette & Woods.
This impact could materialize in several areas.
Chief among them could be in pushing the agency to take a hard line in supervising large banks and enforcing new Dodd-Frank rules.
Petrou pointed to the recent debate over whether Bank of America should have been allowed to move derivatives from a Merrill Lynch unit to one insured by the FDIC. Critics contend the move should not have been allowed because it could ultimately put taxpayers on the hook for any losses.
The agency, along with the Federal Reserve, will now oversee the “living wills” large banks must write detailing how they could be broken up if they begin to fail.
Regulators have the ability to force banks to simplify their operations if they believe they would be too hard to quickly break up in a crisis — an area where Hoenig could try to flex some muscle.
There are also several final rules the FDIC has a hand in writing, including the proprietary trading ban known as the Volcker rule, curbs on executive pay and new rules for packaging loans into securities — all top issues for large banks.
Many of Hoenig’s criticisms of large banks are in line with Obama administration positions, and on several issues he may find more allies than opponents among colleagues at the FDIC and other regulators. His long support for community banks is in line with the agency’s tradition.
Hoenig, however, has also called for more dramatic steps — such as breaking up large banks — than other officials. He has been critical of Dodd-Frank for not going far enough.
In cases where he does clash with other officials, he will face a decision of whether to work the Washington inside game or go public to try to pressure other regulators.
“He obviously has a strong voice and I would think that he’ll be a player, but I would expect it to be mostly playing out in the give-and-take inside the board,” said Jo Ann Barefoot, co-chair of the consultancy Treliant Risk Advisors.
(Reporting by Dave Clarke; Editing by Gary Hill)
