U.S. President Joe Biden's progressive pick to lead the Office of the Comptroller of the Currency will face a tough confirmation process as industry groups pledge resistance and policy analysts foresee hesitancy among moderate Democrats.
The White House announced Sept. 23 that it intends to nominate Saule Omarova, a law professor at Cornell University, as comptroller. Omarova has written academic papers advocating the migration of all demand deposits into "FedAccounts" managed by the Federal Reserve and arguing that the advent of financial technology companies likely amplifies systemic risk.
Industry groups argue Omarova's positions present a market-disrupting force the industry can ill afford. Progressive groups, on the other hand, see Omarova as a welcome changing of the guard in a financial regulatory system that too often favors industry. With Democrats holding a razor-thin majority in the Senate, there is just a 35% chance Omarova is successfully confirmed, said Ian Katz, managing director of Capital Alpha Partners.
"The question really comes down to a few moderate, centrist Democrats," Katz said in an interview. "I'm skeptical that every single one of them will vote for her."
However, Ed Mills, an analyst with Raymond James, is more optimistic on Omarova's chances, writing in a note that it is "more likely than not" that Omarova will be confirmed despite opposition from the banking industry. Her confirmation "could drive renewed focus on institution size, complexity, and permissible banking activities among federal banking regulators," Mills wrote. "We see regulatory risk ahead for the largest banks relative to smaller firms."
Senate Banking Committee Chairman Sherrod Brown, D-Ohio, has said he plans to vigorously support the nomination, while the committee's top Republican, Sen. Patrick Toomey, R-Pa., said he has "serious reservations" about the candidate, who served as a special adviser on regulatory policy under former President George W. Bush.
Omarova detailed her controversial reimagining of the financial system in an October 2020 paper titled "The People's Ledger: How to Democratize Money and Finance the Economy." By moving demand deposits to the Fed's balance sheet, under Omarova's vision, "banks will become non-depository lenders." Separately, in a 2019 paper, Omarova wrote that the explosion of fintechs demands a new framework to consider systemic risk. These positions will make it difficult to secure the Senate votes needed for confirmation, said Dan Stipiano, an attorney at Davis, Polk & Wardwell and a former top lawyer at the OCC.
"It's clear that it's going to be a tough confirmation fight. It would appear likely that she would take the OCC in a different policy direction," Stipiano said in an interview.
The American Bankers Association, the Consumer Bankers Association and the Independent Bankers of America all sharply criticized the nomination, saying they had serious concerns about her views. The uncertain path ahead for the Federal Reserve — with inflation concerns elevated following COVID-19 pandemic assistance and accommodative monetary policy — further complicates Omarova's positions, said Chip MacDonald, of counsel at Jones Day's financial markets practice.
"I don't think the world is ready for a dramatic restructuring of the financial system," MacDonald said in an interview.
Progressive groups such as the National Community Reinvestment Coalition and the Center for American Progress issued statements in support of Omarova's nomination. NCRC President and CEO Jesse Van Tol said Omarova would likely reform the OCC to "make public benefits the agency's priority, not bank industry profits."
George Selgin, a senior fellow at libertarian think tank Cato Institute, said he believes Omarova would do away with fintech and other special purpose charters, already under study by acting Comptroller Michael Hsu.
It is likely she will take "the opposite strategy of not promoting and even perhaps doing away with special purpose charters, and that really will have an effect," he said in an interview. "Ironically, in this case it won't be the banks that suffer."
Rather, upstart special purpose banks or fintech companies are likely to have fewer opportunities for competing with banks or any Federal Reserve payments, Selgin said.
He said Omarova's positions here would "enhance the partisan divide and perhaps cause some Democrats to ... think twice about her nomination," Selgin said. "There are Democrats out there who really like fintech and who want to see it encouraged, so they wouldn't like that."