WASHINGTON — President Trump reiterated his promise this week to ease banking rules in a meeting with more than 100 community bankers, but there is substantial skepticism of when he may be able to deliver on those promises given the delays in nominating key regulators to vacant seats.

Karen Shaw Petrou, managing partner at Federal Financial Analytics, said that lost amid the ballyhoo around the administration’s real or perceived accomplishments in its first 100 days was the true purpose of what that milestone is meant to signify: the time necessary to nominate and confirm the personnel for important positions in the government.

After that time, the government traditionally begins enacting the president’s agenda, Petrou said, but this administration does not appear to be in a hurry.

“The first hundred days are for formally nominating these people, during what is also supposedly your honeymoon period,” Petrou said. “That’s why it’s not unrealistic to assume that after the first 100 days you’ve [made] … not just the nominations, but you’ve set the tone.”

U.S. President Donald Trump.
"It’s chaotic for all of the agencies, partly because it changes the manner in which decisions are made," said one expert, referring to President Trump's lack of personnel appointments at the federal regulators. Bloomberg News

Justin Schardin, director of Financial Regulatory Reform at the Bipartisan Policy Center, said that according to a recent report, there are 13 vacancies out of the 34 Senate-confirmable positions at the 10 financial regulatory agencies (not counting an expired term for Office of the Comptroller of the Currency). Those vacancies can sap agencies’ ability to discharge their duties, he said.

“We pass Dodd-Frank, and give the agencies a ton of stuff to do, and we don’t give them their full complement of people,” Schardin said. “The agencies should always be adapting to changing circumstances; it’s just harder to do when you have fewer members. You’re missing expertise as well as bandwidth.”

Among the chief positions that remain open are three vacancies on the Federal Reserve Board, including one that would presumably be tapped as the vice chair of supervision and another designated as having community banking experience. There are also two vacancies on the Securities and Exchange Commission (Trump nominated Jay Clayton to head the SEC, and his conformation vote is expected to go before the full Senate as early as this week), and another three on the Commodity Futures Trading Commission.

The president also has two appointments to make to the Federal Deposit Insurance Corp. board: one for the independent director, which has been vacant since 2015 with the departure of Jeremiah Norton, and one for the Comptroller of the Currency, which is being served out by Comptroller Thomas Curry even though his term expired last month. There are reports that the administration will name attorney Keith Noreika as acting comptroller as early as this week, though the administration has reportedly settled on former OneWest executive Joseph Otting as a permanent replacement.

One of the three seats on the National Credit Union Administration has been vacant since Debbie Matz’s departure last year, but there’s been no hint from the Trump administration of a nomination for that seat.

Those are 10 currently vacant major positions that require Senate confirmation and for which nominees have not yet been formally named. Nominees typically also must complete questionnaires, be scheduled for hearings and votes in the relevant Senate committees and finally be confirmed by the entire Senate — a process that can take eight weeks or more, depending on the chamber’s legislative workload. Based on the congressional schedule, it is conceivable that some or most of those nominees will not actually assume office until after the August recess.

What is more, there are additional terms that will soon expire. FDIC Chair Martin Gruenberg’s term is slated to expire in November, as is FDIC Vice Chairman Thomas Hoenig's. Federal Reserve Chair Janet Yellen’s term as head of the central bank expires in February 2018, and Consumer Financial Protection Bureau Director Richard Cordray’s term expires in July 2018. Terms of some of the sitting members of the SEC and CFTC are also slated to expire in 2018.

Rick Metsger’s term at the NCUA, meanwhile, expires this summer, which means that if he departs immediately, the regulator could be down to just one sitting board member, Chairman J. Mark McWatters. While it would not be the first time the NCUA has operated with just one board member, there are questions about how far into his agenda the chairman will be willing to go without a second vote.

There are a number of explanations as to what is holding up these nominations, none of which have been presented formally by the administration itself. In past administrations, the initial vetting of candidates typically happens during the transition period, so once Inauguration Day arrives there is a slate of nominees ready to go.

Oliver Ireland, partner at Morrison & Foerster and former attorney at the Federal Reserve, said it doesn’t appear that this administration took that approach, perhaps because it had other priorities or it simply didn’t want to work that way. But the administration has laid out some policy priorities via executive orders in a way that previous administrations have not, he said, and that may work as a placeholder until nominees actually take their seats.

“I think that’s the reason we’ve seen the executive orders, to stake out policy positions; to say, ‘This is the direction we’re going in, don’t do anything contrary to that,’ ” Ireland said. “And it’s kind of worked. They’ve bought themselves a little time.”

Some sources familiar with the nomination process have said that federal conflict-of-interest laws have hampered the process, since nominees would have to divest themselves of their bank stocks or other direct financial investments. Some potential picks might be hesitant to do that, either for logistical reasons or simply because they don't want to make that financial sacrifice. Other nominees have also taken political heat for their ties to the financial sector, including Clayton and Treasury Secretary Steven Mnuchin.

But there may be other factors at play. Some with knowledge of the nomination process have said President Trump appears to have taken a somewhat more hands-on approach than previous administrations in naming these positions, requiring in-person interviews for positions that may have been chosen by a president’s chief of staff.

Other explanations include possible holdups on the Fed board nominations related to an obscure provision in the Federal Reserve Act that says no two members can be chosen from the same Fed district. But at least one former congressional staffer said that provision has always been viewed by Congress as a mild — if not irrelevant — impediment. A 1977 memorandum from the Department of Justice’s Office of Legal Counsel seconds that view, suggesting the definition of “from” could be interpreted quite loosely, or at least would be up to the Senate to decide.

“There are things in the Federal Reserve Act that clearly look like they were written 100 years ago, and this is one of them,” the former staffer said. “It doesn’t matter, and if the president nominates [someone], this is not something that will hold him up.”

Regardless of what is holding back these nominations, the broader question is whether it makes a difference if the administration is understaffed for another several months — either for the agencies themselves or for the banks they supervise.

In the case of the FDIC, there are also statutory requirements that complicate the process. By law, only three members of the same political party can be on the five-member board, making it more difficult to choose nonagency board members like the independent director slot, since presumably the administration would want a Republican in the leadership position. Similarly, because Yellen could choose to stay on the Fed board after her term as chairman, the Trump administration might be limited in picking the new chair by who it nominates for the three existing vacancies. (It is very rare for a former Fed chairman to remain on the board.)

Petrou said that it is critical, particularly for agencies like the Fed, FDIC, SEC and CFTC where any additional vacancies could seriously test their ability to manage workload. It also takes a toll on career staff, she said, who may be wondering whether to stay in public service depending on who is nominated.

“It makes a very big difference, especially if someone gets sick or decides, in the usual terms, ‘to spend more time with his family,’ ” Petrou said. “It’s chaotic for all of the agencies, partly because it changes the manner in which decisions are made, and partly because staff tend to sit on hold trying to decide what’s in their own personal interest based on who their next boss is going to be.”

Schardin echoed that sentiment, and added that if banks want to reduce their regulatory burden, that requires changing the rules, which in turn requires staff and leadership from the top.

“There are a number of people currently who are looking for a deregulatory climate, so if that what you’re hoping for and the agencies are hampered in acting on that stuff, then I’m sure you do care,” Schardin said. “It just depends on what you want them to do.”

Ireland agreed but said the administration’s oft-repeated policy of reducing regulatory burden in the banking sector and elsewhere has certainly had the effect of communicating to the agencies the general direction of regulatory policy, if not the details.

“I do think it’s important, because once they get those people in, they can start to move and change the supervisory tone and look at regulatory changes that you can do without statutory changes,” Ireland said. “This process is different from the ones I’ve seen in the past, but … in a policy sense, we’re not nowhere.”

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