The Biden administration is using two Obama administration’s financial regulators to oversee key departments that eased control of the industry under President Trump, according to two people with knowledge of the plans.
Gary Gensler, who headed the Commodity Futures Trading Commission during the Obama administration from 2009 to 2014, will be Joseph R. Biden Jr.’s nominee for the Securities and Exchange Commission. Rohit Chopra, the former deputy director of the Consumer Financial Protection Bureau, has been selected to lead this agency.
Mr. Gensler is a seasoned regulator who played a key role in getting the big banks going after the 2008 financial crisis and giving a supervisory authority new teeth. Recently, as an academic, he has become familiar with digital currencies like Bitcoin, which have become an important part of the SEC’s regulatory mandate. He led the transition team and advised Mr. Biden on overseeing financial oversight.
Gensler, 63, is about to join an agency that has been criticized for being too lenient in prosecuting high profile cases involving Wall Street and the American corporation.
“I think he has a more developed enforcement philosophy, given the work he’s done at the CFTC, and is likely more aggressive than the previous chairman,” said Matt Solomon, former chief litigation attorney at the SEC and a partner with the law firm Cleary Gottlieb.
The agency that Mr. Chopra will take over has been mangled under Mr. Trump. The consumer bureau was founded as an idea by Senator Elizabeth Warren under the Dodd-Frank Financial Overhaul Act and largely ineffective after Trump named Mick Mulvaney as interim chairman. He promised to run the agency with “humility and prudence” and did not request funding from the Federal Reserve. Kathy Kraninger, who took over the helm of the agency in 2018, has been accused by Democrats of undermining the office they have accused of denying “millions of dollars in relief” to consumers. Democrats have put pressure on Ms. Kraninger to resign or be fired.
In June, the Supreme Court ruled that the President had authority to remove the CFPB director before his five-year term was up.
During his tenure in the consumer office until 2015, Mr. Chopra was the agency’s first “Student Loan Ombudsman” advocating greater protection for borrowers. Student loans are expected to be a focus for Mr. Chopra in addition to payday loan protection and debt collection provisions. On these issues, he would most likely have an ally in Bharat Ramamurti whom former Warren advisor Biden has won as director of the National Economic Council for Financial Reform and Consumer Protection.
For the past three years, Mr. Chopra has served as Commissioner for the Federal Trade Commission and has often spoken out against the Republican majority. Instead, he advocated stricter enforcement measures against companies like Facebook.
At the SEC, one of Mr. Gensler’s most pressing decisions will be the election of an enforcement director – an important role in setting regulatory priorities. But the new administration and the Congress Democrats, who will control both chambers, have already established a number of chambers.
Mr Biden has spoken about companies needing to disclose more information about their environmental impact, while members of Congress discussed limiting buybacks of company shares and enforcing greater control over so-called shadow banking activities by hedge funds and private equity firms.
“This entire government is prioritizing climate change in terms of what any agency can bring to the table to help us fight climate change – and the SEC is really playing a vital role in that,” said Mary Schapiro, the former Chairwoman of the SEC who worked closely with Mr. Gensler when he was with the commodities regulator. Ms. Schapiro probably named the climate, along with issues of trade and market structure, one of the priorities for Mr. Gensler.
When Mr. Gensler took the helm of the CFTC, it had a poor reputation, largely confined to taking enforcement action against small trading companies. There have even been calls in Congress to merge it with the SEC. But Mr. Gensler’s responsibility after the financial crisis of 2008 calmed this criticism. His agency often shared the spotlight with the SEC – and sometimes even overshadowed it.
Under his leadership, the CFTC took action against the manipulation by large banks of Libor – the London Interbank Bank Offered Rate – which sets the interest rates on many bank loans. Working with the Justice Department, Mr. Gensler and the CFTC pulled heavy fines from banks and led to a plan to replace Libor with a new benchmark that is less subject to abuse.
The CFTC also shared the stage with the SEC investigating the so-called flash crash of 2010, when the Dow Jones Industrials fell 1,000 points in just 10 minutes – a record drop at the time. A joint investigative report from the two regulators never found an exact cause, but found that a combination of high-frequency trading and fast trading in e-mini stock futures – a sophisticated exchange-traded fund – contributed to the turmoil.
“Wall Street interests are not always the same as the public,” he told the New York Times in 2010.
After retiring from the CFTC, Mr. Gensler began teaching at the Sloan School of Management at the Massachusetts Institute of Technology and was well educated in digital currencies. He even taught a course on blockchain technology and how it can play a role in transforming markets and replacing middlemen on Wall Street – an experience that would make him the first commission chairman to speak the language of crypto enthusiasts without having to resort to Google for translation.
Mr. Gensler will succeed Jay Clayton, who stepped down last month. Mr. Clayton was a corporate attorney who joined the SEC from Sullivan & Cromwell after working for many large banks and corporations. One of his mandates is to make it easier for companies to go public and to protect investors on Main Street.