What Trump's SEC Pick Means for Other Banking Posts
President-elect Donald Trump's choice of well-known Wall Street lawyer Jay Clayton to head the Securities and Exchange Commission was a relatively safe move that suggests his other financial appointments may be equally conservative, industry observers said.
Trump announced Wednesday that Clayton, a partner at Sullivan & Cromwell who was heavily involved in prominent deals during the financial crisis, would be his pick to succeed Mary Jo White as SEC Chairman. What surprised observers was how unsurprising the pick was.
"This is a conventional choice for a Republican president," said Jaret Seiberg, an analyst with Cowen Washington Research Group. "Clayton is a lawyer from a high-profile law firm who works with public companies. He almost is from central casting."
Ian Katz, a director at Capital Alpha Partners, said "Clayton is the kind of SEC nominee we had expected from Trump. He's a lawyer with dealmaking experience who's comfortable with Wall Street banks and doesn't vilify them."
Most said Clayton would likely push forward on Trump's stated deregulatory agenda.
"Given Clayton's experience facilitating deals, we expect that oversight will be loosened or at least reconsidered," Katz said.
But it may also signal a desire by Trump to play it safe when it comes to financial appointments, observers said.
"It suggests Trump could similarly turn to a high profile banking lawyer to be vice chairman for supervision at the Federal Reserve, to be FDIC chairman and to be Comptroller of the Currency," wrote Seiberg. "It is to us the first real indication that Team Trump would turn to a conventional pick for a top bank regulatory position."
Bankers are anxious to see who Trump will pick to be vice chairman for banking supervision at the Fed, a spot that has gone unfilled since its creation by the Dodd-Frank Act in 2010. Several candidates have been rumored for the position, including John Allison, the former CEO of BB&T, Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig, and Paul Atkins, a former board member at the SEC who is a key member of Trump's transition team.
Of those choices, Atkins would be the most in line with Trump's choice of Clayton for the SEC job. Seiberg argued that banking lawyers — including past Comptrollers of the Currency John Dugan and Eugene Ludwig — tend to be "more practical in their approach to supervision rather than ideological."
To be sure, however, predicting what Trump will do is a guessing game at best.
"That said, there is now some reason for optimism on the bank side given Trump's pick for SEC chairman," Seiberg wrote.
Clayton comes to the SEC role with a wealth of experience in working on big banking deals. He helped Barclay's purchase Lehman Brothers assets after it went into bankruptcy, facilitated the sale of Bear Stearns to JPMorgan Chase and was involved in a number of mortgage settlement deals with government regulators.
He also has close ties to Goldman Sachs, having been involved with the U.S. Treasury's Troubled Asset Relief Program investment and has worked with the bank on a number of other investment deals.
In a statement, Trump said Clayton will be tasked with reducing regulations while also preventing financial misconduct.
"Jay Clayton is a highly talented expert on many aspects of financial and regulatory law, and he will ensure our financial institutions can thrive and create jobs while playing by the rules at the same time," said Trump in a statement. "We need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers."
Clayton said in the same statement that "we will carefully monitor our financial sector, as we set policy that encourages American companies to do what they do best: create jobs."
Clayton still faces a potentially grueling nomination process. Republicans hold a one seat majority on the Senate Banking Committee, but Democrats' ability to use the filibuster to stop nominations has been severely limited.
While Clayton may be confirmed, he will likely face tough questioning from Democrats including Sen. Sherrod Brown, the lead Democrat on the panel, and Sen. Elizabeth Warren, D-Mass.
Inquiries from newly minted banking panel member Sen. Catherine Cortez Masto, D-Nev., may also prove to be interesting because as Nevada Attorney General she worked on the $25 billion National Mortgage Settlement regarding mortgage servicing abuses while Clayton was helping Ally Financial to settle the claims.
Progressives groups have already signaled to lawmakers that they believe Clayton is unfit for the position.
"Jay Clayton has spent his career helping big banks weasel out of accountability for robbing millions of Americans of their life savings and crushing our economy," said Adam Green, co-founder, Progressive Change Campaign Committee.
In addition to serving at the SEC, Clayton will if confirmed also have a seat on the Financial Stability Oversight Council, which oversees financial stability and has the ability to subject nonbanks to prudential regulation and higher capital standards.