Trump's FDIC Pick Plays It Safe on Fight Over Big Bank Leverage

(Bloomberg) -- Jelena McWilliams, President Donald Trump’s pick to be the next chief of the Federal Deposit Insurance Corp., is tiptoeing through a battlefield that pits the agency against other regulators in a fight over big-bank leverage.

The Federal Reserve wants to relax a post-crisis requirement known as the leverage ratio that led to dramatically increased capital levels at Wall Street lenders. But the FDIC, which for now is run by a Barack Obama appointee, has been opposed.

Trump's FDIC Pick Plays It Safe on Fight Over Big Bank Leverage

Senator Sherrod Brown, the Banking Committee’s top Democrat, pressed McWilliams at her confirmation hearing Tuesday on whether she’d keep up the fight. She demurred, saying “I would like to take a look at leverage rules.”

But Brown wouldn’t let it go, asking McWilliams whether excessive borrowing by banks helped cause the 2008 financial crisis. McWilliams -- the chief legal officer at Fifth Third Bancorp -- hesitated to agree completely, while promising to “circle back” after studying the FDIC’s analysis on the topic.

Billions Released

The leverage ratio is hugely consequential to Wall Street because billions of dollars could be freed up at banks if it’s dialed back. The Fed and the Office of the Comptroller of the Currency, another bank regulator, are counting on McWilliams to back efforts to make it less burdensome.

McWilliams, who once worked as chief counsel for the Senate committee, didn’t reveal much about her views on Wall Street oversight, focusing almost entirely on community banks.

She said she’s concerned that the smallest lenders aren’t secure from cyber threats, and added that she wants to encourage people to open more banks. Reducing regulations on community banks is a top goal, including capital and liquidity constraints and exempting them from Volcker Rule trading restrictions, McWilliams said.

“Regulatory burden plays a key component in consolidation,” she said.

Also at the hearing, Thomas Workman, the nominee to take an insurance-expert position on the Financial Stability Oversight Council, said an idea pushed by the Treasury Department to redirect how the council flags risks “deserves consideration.”

Treasury has sought to largely abandon designating nonbank firms as systemically important -- a label currently affixed only to Prudential Financial Inc. -- and instead focus on specific activities that might be dangerous. He also supported increased transparency for those dealing with FSOC.

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