Wall Street's Least Favorite Regulator Hoenig Calling It Quits

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(Bloomberg) -- The ranks of regulators Wall Street loves to hate will lose one of its last and most prominent voices next week when Thomas Hoenig steps down as vice chairman of the Federal Deposit Insurance Corp.

A free-market conservative who often saw eye-to-eye with pro-regulation forces, Hoenig has consistently argued that big banks should have huge stockpiles of capital and be less leveraged, a view that has become increasingly unfashionable in President Donald Trump’s Washington.

Hoenig joined the FDIC in 2012 after serving as president of the Federal Reserve Bank of Kansas City. Throughout the post-crisis period, he offered pointed public reminders that under-capitalized megabanks had posed a real threat to the global economy just a few years earlier. And he continued to argue -- sometimes as a lone voice -- that new rules meant to remedy that problem weren’t strong enough.

After last year’s departure of Daniel Tarullo, the Fed governor who had been one of Wall Street’s most outspoken adversaries, Hoenig was left as the most visible of the bankers’ antagonists. His message has been drowned out in the last year by the de-regulatory effort led by Trump’s appointees to key agency posts.

‘Long-Term Resilience’

“I caution strongly against eroding the post-crisis capital standards that have contributed to the strength of U.S. banks and the long-awaited recovery of the U.S. economy,” Hoenig said in his farewell speech last month. “Weakening these standards will undermine the long-term resilience of not only the banking system, but the broader economy as well.”

Hoenig announced Friday he’ll leave the FDIC on April 30. His departure had been expected, and he was waiting for his position to be occupied by Jelena McWilliams, Trump’s nominee to be the agency’s next chairman. Though McWilliams would replace Martin Gruenberg in the top job, she’s slated to take Hoenig’s seat on the FDIC’s five-member board.

Despite ties to Republicans, Hoenig’s views -- such as wanting to separate the riskiest parts of banks’ businesses from government-supported deposit-taking and lending -- often sounded similar to those of industry critics such as Senator Elizabeth Warren.

‘Forceful Advocate’

Gruenberg, who called Hoenig “a forceful advocate for strong, independent financial regulation” in a statement Friday, hasn’t said whether he’ll stay when McWilliams takes over. He’s entitled to remain as an FDIC board member through December, and many people in the industry think he will. But Gruenberg -- a longtime regulator and staff member for congressional Democrats -- never seized the kind of attention that Hoenig has. And Hoenig was seen to be instrumental in the agency’s position on tough capital rules, including limits on bank leverage that were more stringent than global standards.

Those same leverage rules are now being dialed back by a recent proposal from the Fed and Office of the Comptroller of the Currency. And when the FDIC is under new management, that agency is expected to join in.

Hoenig -- never shy about sharing a contrary view -- warned fellow regulators last month about engaging “in this race to the bottom.”

©2018 Bloomberg L.P.

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