Biden’s Wall Street watchdog picks to offer clues on regulations

President Biden’s nominees to lead two financial sector watchdog agencies will lay out their plans for a tougher regulatory regime and stricter oversight during their confirmation hearings Tuesday.

Biden’s picks to lead the Securities and Exchange Commission (SEC) and Consumer Financial Protection Bureau (CFPB) will testify before the Senate Banking Committee and face questions about their plans to reverse years of light-touch regulations during the Trump administration.

The nominations of Gary Gensler to chair the SEC and Rohit Chopra to direct the CFPB elated a wide range of Democrats united by support for more aggressive supervision of banks, lenders and the investment industry.

Gensler, a former chairman of the Commodity Futures Trading Commission (CFTC) and Goldman Sachs partner, is perhaps the sole Wall Street veteran who is progressive enough to impress the Democratic Party’s left flank.

“When he was nominated to become the director of the CFTC, there were some detractors on both sides of the aisle, but very broad bipartisan support for his nomination. I would expect to see the same thing again here,” said Kurt Wolfe, a corporate and securities attorney at law firm Troutman Pepper.

Chopra, a Federal Trade Commissioner since 2018, has close ties to Sen. Elizabeth Warren (D-Mass.), architect of the agency he’s been nominated to lead.

With strong credentials, previous Senate confirmations and bipartisan appeal, the two nominees are expected to face little trouble securing their new gigs. But the extent of the Republican support they get could hinge on polarizing policy disputes that are likely to dominate their early days in office.

“The narrow margins in the Senate and the fact that — so far, at least — the filibuster seems like it’s in place, a lot of the progressive wish list is going to move to the agencies,” said Jason Rosenstock, a financial services lobbyist and partner at Thorn Run Partners.

Gensler and Chopra have each spent their careers working toward stronger checks on the financial sector, greater transparency and tougher penalties on misconduct. They each plan to emphasize how crucial those priorities will be after a year volatile year for the financial sector and economy.

Democrats have grown increasingly alarmed over how investment apps such as Robinhood have helped lead a flood of novice investors — many with nowhere to go and stimulus checks to burn — into the stock and options markets, particularly in the wake of the GameStop frenzy. Republicans have bristled at calls to impose limits on amateur investors, calling such rules patronizing.

Gensler, a professor at the Massachusetts Institute of Technology, is set to praise the power of financial innovation but warn about the dangers of insufficient consumer protections.

“We have seen that when the SEC does its job — when there are clear rules of the road and a cop on the beat to enforce them — our economy grows and our nation prospers,” Gensler will say in his opening statement, which was released by the Senate Banking Committee on Monday.

“But when we take our eyes off the ball — when we fail to root out wrongdoing, or to adapt to new technologies, or to really understand novel financial instruments — things can go very wrong. And when that happens, people get hurt.”

Chopra is also set to emphasize the importance of strong oversight amid the coronavirus downturn, focusing on a potential foreclosure and eviction crisis. More than 11 million households are facing homelessness when coronavirus-related protections begin expiring this month, according to a report released Monday by the CFPB.

“In the last economic crisis a decade ago, we saw how unlawful and avoidable foreclosures proved to be catastrophic in cities, small towns, and rural areas alike, contributing to deeper social divisions and inequities. We once again face an important test to ensure that troubles in the housing market do not sabotage the recovery of our local economies,” Chopra will say in his opening statement.

Democrats and Republicans have largely agreed on steady support for families facing housing insecurity during the pandemic, but Chopra could face heat for his agenda beyond the pandemic response.

At the FTC, Chopra’s fierce criticism of major technology companies such as Facebook and support for far steeper penalties drew backlash from the technology industry. Chopra is expected to carry over that approach to the CFPB, where he served as one of the agency’s first senior officials and its first student loan ombudsman.

Chopra’s supporters and critics see him as the natural heir to the legacy left by Warren and former CFPB Director Richard Cordray, who were lionized by progressives and reviled by Republicans for their crusading approach to financial sector oversight.

Democrats have been eager to unwind four years of regulatory rollbacks, internal reorganization and looser oversight at the CFPB under Trump appointees, while Republicans and the financial industry are bracing for more combative posture from their agency.

“The Chopra nomination is arguably a little bit more divisive,” Wolfe said, “as is the CFPB.”

“There may be some more tense moments around the questioning of Mr. Chopra.”