Senate Democrats on Thursday criticized the financial industry backgrounds of President Trump’s nominees for two key banking regulatory positions, arguing they would not protect the interests of average Americans.
Sens. Sherrod Brown (D-Ohio), Elizabeth Warren (D-Mass.) and others sharply questioned Joseph Otting, the former chief executive of Pasadena’s OneWest Bank, and investment fund manager Randal Quarles during a confirmation hearing by the Senate Banking Committee.
Trump nominated Otting to be the comptroller of the currency, a powerful regulator of national banks. Quarles has been tapped to be the Federal Reserve’s vice chairman for supervision, who is in charge of the Fed’s oversight of the nation’s largest bank holding companies and other regulatory efforts.
The two are expected to be friendlier to the banking industry than recent Democratic appointees.
Otting came under fire from Democrats for the foreclosure practices at OneWest Bank.
In 2011, a regulator that is now part of the Office of the Comptroller of the Currency said in a regulatory order that OneWest had engaged in robo-signing, a practice in which workers signed mortgage- and foreclosure-related documents without reviewing them or verifying they were accurate.
“You permitted your bank to break the rules while in the process making life harder for homeowners… across the country trying to stay in their homes,” Brown told Otting. “How do we trust that you won’t allow banks to skirt the rules and harm their customers as their regulator?”
Otting defended his tenure at OneWest, which he ran from 2010-15. Treasury Secretary Steven T. Mnuchin was the bank’s chairman from 2009-15.
Otting said OneWest did not confirm or deny the allegations in the 2011 regulatory order and that there’s been “a false narrative” about the bank’s foreclosure practices.
Brown shot back, “It’s a false narrative to you but not to those who lost their homes.”
Republicans at the hearing expressed support for Otting and Quarles, with some particularly impressed with their financial industry experience, indicating the nominees probably will be confirmed in the coming weeks.
“These two positions are critically important to ensuring a safe, sound and vibrant financial system and we are fortunate to have two highly qualified individuals to consider for these posts,” said Sen. Mike Crapo (R-Idaho), the committee’s chairman.
Otting and Quarles said they believed the 2010 Dodd-Frank overhaul of financial regulations had made the banking system stronger but indicated that they supported some changes. Trump has said he wanted to dismantle Dodd-Frank, and a recent Treasury report called for major rollbacks of regulations.
“As recognized by the Treasury’s recently released report, regulatory policies that have been enacted since the financial crisis have improved the safety and soundness of the financial system,” Quarles said. “But as with any complex undertaking, after the first wave of reform, and with the benefit of experience and reflection, some refinements will undoubtedly be in order.”
One change Quarles supports is giving large banks more information about the Fed’s annual stress tests, which are designed to determine if banks can withstand a severe financial shock.
Warren criticized that position as allowing banks “to see the test in advance.”
“We just went through a devastating financial crisis less than a decade ago because powerful people in government let powerful financial institutions call the shots. We can’t go down that road again,” Warren said.
“We need people in government who are willing to stand up to large financial institutions and we need people who have a demonstrated history of that and you simply don’t, Mr. Quarles,” she said.
Brown noted that when Quarles served as a top Treasury official during the George W. Bush administration, he said two years before the 2008 financial crisis that the financial sector was healthy and banks were well-capitalized.
Quarles said he and other Treasury officials believed at the time that “the risks building up in the system were manageable” but that they probably were “too cautious” in pushing for changes to make the system safer.
Democrats, as they did during Mnuchin’s confirmation hearing, slammed Otting for OneWest’s foreclosures.
In 2009, Mnuchin led a group of investors who put up about $1.6 billion to buy the failed IndyMac bank, a leading subprime mortgage lender. They renamed the bank OneWest and Otting was hired as chief executive in 2010.
“Going into IndyMac can only be described as what a fireman feels when he gets to the front door of a five-alarm fire,” Otting said Thursday. “The bank had almost 200,000 loans in default.”
Otting said that OneWest employees worked to stop foreclosures and he preferred to focus on the thousands of homeowners who were spared from foreclosure by mortgage modifications.
He also said there are a lot of descriptions of robo-signing and he did not believe that OneWest employees engaged in the practice.
Those comments drew a rebuke from Sen. Catherine Cortez Masto (D-Nevada). She read the practices described in the regulatory order and concluded, “that is robo-signing.”
When Otting objected, she asked why he signed the order on behalf of OneWest.
“I would argue I had to for the benefit of our employees sign that consent order when I did not agree with what was described,” he said, again reiterating that the bank did not confirm or deny the allegations in the order.