Senate Republicans may have finally found a Donald Trump nominee that doesn’t pass muster. There is no indication that Nellie Liang faces credible accusations of sexual assault or perjured herself before a Senate Committee. Rather, concerns are emerging among Banking Committee Republicans that Liang may not be friendly enough to banks to fill an open seat on the Federal Reserve Board of Governors.
Trump selected Liang, a former Federal Reserve economist who oversaw several innovations in financial supervision after the 2008 financial crisis, in late September. Senate Banking Committee Chair Mike Crapo, R-Idaho, who normally would be consulted about a top banking-related position, didn’t find out about the nomination until it was announced. Crapo has yet to endorse Liang for the seat.
Sen. Pat Toomey, R-Pa., when asked if he had thoughts about Liang’s nomination, said, “Yes, but not that I can,” pausing to laugh and adding, “really — I have some concerns. I’m looking forward to meeting with her.”
Sen. Bob Corker, R-Tenn., said there was one senator in particular who had objections. “I understood there was one in particular on the committee that was concerned, but, you know, our staff has not really talked with me. I know we’ve got this one nominee that people are expressing some degree of concern over,” he said.
Asked if he knew who that person was, Corker said he did, but “probably shouldn’t share it.”
Sen. Tom Cotton, R-Ark., said he’d heard about the nomination but gave no comment. And Sen. Thom Tillis, R-N.C., said he was “just beginning to” go into it. “I have some concerns.”
Sen. John Kennedy, R-La., said he was “not there yet” when it came to supporting Liang. “I just heard about it yesterday. I’ve gotta study up on the issue. I’ve got a call at some point with Jay Powell, but I’m not there yet,” he said Tuesday.
Powell, who Trump named to chair the Fed earlier this year, is a supporter of Liang’s, and has been calling Senate Republicans in order to get them on board with her confirmation. But criticism has been widespread. The Washington Examiner, a right-leaning outlet, suggested Tuesday that Liang was “the first nomination of the Elizabeth Warren administration,” while branding her “an obdurate Dodd-Frank apologist.”
Willingness to agree that Dodd-Frank hasn’t hurt bank lending or profits, or that having more research on bank activities is a sensible idea, is apparently enough to make you a pariah in conservative circles these days — at least from the perspective of Jared Whitley, the former George W. Bush White House and Senate Republican staffer who wrote the Examiner op-ed.
For the committee’s Democrats, there’s optimism that the nominee may not be a fire-breathing deregulator. “I’m hopeful that she has more sense than some of the people they put on,” said ranking member Sen. Sherrod Brown, D-Ohio.
Liang doesn’t have a typical Trump appointee profile, in that she’s experienced for the job to which she was nominated and has no blatant conflicts of interest. Liang worked at the Fed for over 30 years, most recently as the first director of the Office of Financial Stability Policy and Research, a position established after the crisis to monitor systemic risk. Liang left to join the Brookings Institution in 2017.
While at the Fed, she helped create the stress tests instituted after the financial crisis to judge the resilience of the largest banks during an economic downturn. Favorable stress test results allow banks to issue stock buybacks and increase dividends.
The Fed has been notably friendlier to the banking industry in undertaking its stress tests, even tipping off banks that they may fail to avoid embarrassment. But Liang has opposed making stress tests less frequent, as well as opening them up to a notice and comment period that would essentially give banks the answers to the test before they had to take it. The Treasury Department has formally recommended all of the steps that Liang opposes.
Jaret Seiberg of Cowen Washington Research Group, a prominent analyst on banking issues, summed up Liang’s prospects in a September research note, “Nellie Liang to Federal Reserve Would Be Challenge for Biggest Banks.” Seiberg labeled Liang an “architect” of the post-crisis regulatory regime, who would be unlikely to support changes that would reduce capital levels on big banks.
Seiberg cited Liang’s July 2017 keynote address at the International Finance and Banking Society, where she insisted that bank capital requirements yielded multiple benefits, did not constrain lending, and in the U.S. were currently too low, if anything. In the speech, Liang supported a new 2.5 percent capital buffer, which the Fed will decide whether to institute in 2019. She even calculated that the optimal capital ratio could be as high as 25 percent, a number that terrifies the industry. Only advocates like Stanford University’s Anat Admati, derided by bank lobbyists as extremists, have ever called for capital levels that high.
Liang has rejected other conservative initiatives on bank deregulation, such as excluding assets like Treasury bonds when calculating capital ratios; exempting banks that keep a relatively high capital ratio from other rules; or eliminating orderly liquidation authority, Dodd-Frank’s mechanism for the Federal Deposit Insurance Corp. to wind down a failing large bank.
It’s not like Liang is straight out of Occupy Wall Street; for example, she would be unlikely to support the bill to break up large banking institutions introduced this week by Sen. Bernie Sanders, I-Vt. At the root, Liang is an institutionalist, wedded to the technocratic tweaking favored by the Obama establishment after the financial crisis. But even that relatively mild perspective conflicts with those of Republican senators who pushed through the recent bank deregulation bill and want to see it applied to as many large banks as possible. Randal Quarles, the Fed’s current vice president of financial supervision, hews more to the Senate Republicans’ way of thinking.
It’s unclear how Liang managed to get nominated for the Fed by an administration that has been fairly doctrinaire on supporting deregulation. Sources have suggested that Liang’s long history at the Fed could be playing a role, along with her deep institutional support from both sides of the aisle. The Trump administration is famously loose with its vetting of executive branch choices, and may have just outsourced the pick to Powell.
In a press conference last week, Powell said that nominations are “completely under the control of the White House,” but did acknowledge that he was consulted about the Liang selection. “I’m very happy and excited about the team that we’re putting together,” Powell added.
Liang is unlikely to get a vote before the November elections, but her nomination could come up in the lame duck session — if Senate Republicans hop aboard.
Correction: October 4, 2018, 1:06 p.m. EDT
A previous version of this article incorrectly identified Sen. Mike Crapo of Idaho as a Democrat. It has been updated.