Outsider emerges as top contender to lead OCC


WASHINGTON — Banking policy observers have been in suspense for weeks over whom the Biden administration will select for comptroller of the currency.

The focus initially was on Michael Barr, a former Treasury Department official and key figure in the post-financial crisis regulatory overhaul. But speculation has grown this week that the White House is leaning toward Mehrsa Baradaran, a California-based legal scholar and relative outsider who advocates for narrowing the racial wealth gap.

“She understands that the banking system does not work for many, many people in this country,” said Chris Odinet, a law professor at the University of Iowa. “She’s been teaching about how all these pieces fit together for years and years.”

Sources, who mostly declined to be identified publicly, suggested the process could still be fluid. A third potential candidate, California state regulator Manny Alvarez, could also be in the running, sources say.

Following President Biden’s inauguration, the search for the next head of the Office of the Comptroller of the Currency seemed in flux after progressive advocates had objected to Barr’s name being floated, citing his ties to fintech firms and certain Obama-era policies, and pushed for Baradaran to be considered instead.

On Friday, Politico’s Morning Money newsletter said opposition to Barr had accelerated, and on Monday reported that the administration was “close” to nominating Baradaran. Bloomberg News reported that Barr was effectively out of the running.

Mehrsa Baradaran's supporters have argued that her outside-the-Beltway perspective bolsters her candidacy to become comptroller of the currency.

Mehrsa Baradaran’s supporters have argued that her outside-the-Beltway perspective bolsters her candidacy to become comptroller of the currency.

The next comptroller, whoever it is, is expected to unwind most of the regulations from the Trump administration, leading the OCC’s work to reform the Community Reinvestment Act and determine whether the agency continues on the path of expanding access to the national bank charter for fintechs and other nontraditional companies.

The OCC was at the center of some pitched fights under former acting Comptroller Brian Brooks and former Comptroller Joseph Otting, both Trump appointees, particularly over reforming the CRA.

Some observers argue the policy differences between Baradaran and Barr are limited. Baradaran is the clear favorite of community activists for her financial inclusion views, but Barr also has a very pro-consumer policy record.

Whoever the nominee is, analysts broadly expect the comptroller to pursue policies to bolster racial justice in the financial system and advocate for broader consumer protection measures.

“No matter who is the Democratic nominee, a lot of what they do will be very similar, and they will be tougher on banks,” said Ian Katz, a managing director and policy analyst at the research firm Capital Alpha Partners. “There will be a marked difference with the Trump administration.”

Others have expressed concerns that the delay in announcing a nominee could have consequences.

With no confirmed comptroller in place when Biden took power, the top post at the OCC was seen as an immediate way for the administration to put its imprint on banking policy. But whereas other nominations to lead agencies like the Consumer Financial Protection Bureau and Securities and Exchange Commission have advanced, the limbo over who will lead the OCC has put discussions about reforming CRA and other matters on hold.

The delay may be the result of limited bandwidth. Between the ongoing pandemic and weeks of high-stakes negotiations in Congress over an economic stimulus package, Biden has had no shortage of crises. The OCC has not historically been a high priority role for incoming administrations.

“There’s work to be done,” said Odinet. “To not prioritize the appointment of a new comptroller is to allow other forces, other interest groups, other stakeholders, to drive that conversation. It creates a vacuum.”

The next comptroller is widely expected to restart the CRA regulatory process to reform the 1977 anti-redlining law that potentially could be expanded to include nonbank mortgage providers.

Ultimately, Otting could not get buy-in from the Federal Reserve or the Federal Deposit Insurance Corp. for his final CRA rule. It is widely expected to be changed if not gutted entirely. Principals at the Fed and FDIC have recently called for a harmonized approach by the agencies to reforming the law.

The next comptroller also will likely erase or redefine the OCC’s so-called fair access rule that sought to punish banks that were deemed to be discriminating against firearms and fossil-fuel companies.

With Barr reportedly out of the running, the race now appears down to two candidates: Baradaran, a law professor at the University of California, Irvine School of Law; and Alvarez, the commissioner of California’s Department of Financial Protection and Innovation.

Baradaran appears to have the backing of Senate Banking Committee Chairman Sherrod Brown, D-Ohio, who is reportedly pushing for her to get the nod. Baradaran, who has taught banking law for over a decade, has written books including “How the Other Half Banks” and “The Color of Money: Black Banks and the Racial Wealth Gap.” She also worked as an attorney at Davis Polk & Wardwell, and had teaching stints at Brigham Young University and the University of Georgia.

While Barr is well-known in Washington financial policy circles thanks in large part to his role in the creation of Dodd-Frank, Baradaran is a relative outsider. But her supporters have argued that her perspective from outside the Beltway, as well as her experience as a first-generation immigrant and woman of color, bolster her candidacy.

“The last four years in particular have made it crystal clear that insiders don’t make good regulators,” said Charles Khan of the Center for Popular Democracy in a January press release from social justice groups. “Mehrsa’s extensive research and resume show she’s ready to take on the financial industry and put the public interest first.”

But some experts criticize her lack of banking or government experience.

“Anyone who is steeped in financial services, frankly, will know the business inside and out, and will know how to regulate it,” said Tom Vartanian, a law professor at George Mason University. “When I needed to get a hip replacement, I went to a surgeon who had replaced a thousand hips, not someone who had just read about it.”

Alvarez can tout his experience as a powerful state regulator in California that has safety and soundness responsibilities and knows the panoply of bank supervisory requirements.

He also recently won the support of Sen. Alex Padilla, D-Calif., who sent a letter on Monday to President Biden recommending that Alvarez be nominated to the post.

“As the first person of color and the first Latino in this role, Manny would be an asset to the OCC as it tackles the challenges of an equitable economic recovery and technological advancement for all communities,” Padilla wrote.

“Throughout the pandemic, Manny negotiated mortgage and financial relief commitments from banks and credit unions on behalf of Californians, and he helped institutions navigate the Paycheck Protection Program,” Padilla added. “He will bring the care for restoring public trust in banking services as well as the care for generating equitable opportunity and access to capital that will be essential to sparking growth.”

The OCC’s next leader will also have to answer fundamental questions about the trajectory of the financial system, particularly on the future of bank chartering. For years — dating back to the Obama era — the OCC has pushed to offer a special-purpose bank charter for fintech firms without the requirement of deposit insurance. The OCC has also been accused repeatedly of being overly aggressive on federal preemption at the expense of state authority.

Others have argued that given the pandemic, there is a greater need to have a comptroller who could navigate a financial crisis.

“We have to take very seriously the risk that we could have a major interest rate crisis a year or two or three from now,” said David Dworkin, president and CEO of the National Housing Conference, who had supported Barr for the job.

The OCC needs “someone who can both modernize the Community Reinvestment Act and effectively manage a crisis in interest rates,” Dworkin said. “If you can’t check both of those boxes, you are not qualified to run the OCC.”

Some think the Biden administration’s delay in putting forward a candidate is stalling its agenda for prudential regulators. The comptroller has a seat on the FDIC board and has a direct role in other government organizations including the Financial Stability Oversight Council.

“If the administration wants to hit the ground running when it comes to fairness and equality in the financial sector, then it needs to have all of the regulatory leadership installed,” Odinet said. “The comptroller is a big part of that not just because they regulate the national banks, but because they also play so many other roles in the agencies that police the financial sector.”

Hannah Lang and Neil Haggerty contributed to this article.