Tomorrow morning, the Senate Banking Committee will hold a hearing on President Biden’s nomination of Marty Gruenberg to once again serve as Chair of the Federal Deposit Insurance Corporation (FDIC), which regulates U.S. banks in conjunction with other federal agencies and administers deposit insurance for customer accounts. Coindesk referred to the nomination as “back to the future,” as Gruenberg served in the same position from 2012 to 2018 after being appointed by President Obama and confirmed by a Democrat-led Senate
Unfortunately, Gruenberg’s past tenure does not bode well for the future of financial markets. During his tenure, the FDIC worked with other Obama administration agencies to politicize finance through Operation Choke Point. For this reason alone, the Senate should reject his nomination.
Under Operation Choke Point, the FDIC pressured banks to cut off or reduce financial services to a list several types of legal businesses it deemed as “high risk”—from firearms to fireworks. The FDIC’s tortured rationale was that doing business with these firms posed a “reputational risk” to banks, as these businesses operated in controversial sectors of the economy. Yet what was “controversial” often times simply represent the industries that regulators and the Obama administration didn’t like.
As a result of this regulatory scheme hidden from the public, small businesses and consumers lost access to financial services, as banks stopped lending to and accepting deposits from these customers. After public outcry and congressional investigations, Gruenberg’s FDIC did eventually issue a revised guidance on “reputational risk” in 2015 and pulled its infamous list of controversial industries.
My colleague Iain Murray wrote at the time that these actions were “an implicit admission by FDIC that its staff has been guilty” of abusing the law to pursue agendas against industries it didn’t like through the banks under its supervision. Yet there is scant evidence that Gruenberg ever discipline staff members for these abuses. Choke Point did not formally end until it was terminated by the Trump Justice Department in 2017.
And now there are signs the Biden administration is pursuing politicized finance schemes similar to Choke Point through central bank digital currency that would allow regulators to monitor transactions and efforts to pressure banks to restrict lending to oil and gas firms. The latter was explicitly advocated by Biden banking nominee Sarah Bloom Raskin, and proved too much even for Democratic Sen. Joe Manchin of West Virginia, forcing the withdrawal of her nomination. Gruenberg’s involvement in the first stages of the politicization of finance should raise similar concerns, and he should not be confirmed.