Summary List Placement
Regulatory veteran Gary Gensler has officially been tapped by President-elect Joe Biden to lead his financial policy transition team. A large responsibility of Gensler’s new role will be to oversee Wall Street and the regulations that govern it.
As part of Biden’s transition team, Gensler will be leading an effort to review the Federal Reserve and banking and securities regulators, according to Bloomberg.
Gensler, who during the Obama administration spearheaded watchdog efforts as chair of the Commodity Futures Trading Commission, which regulates the United States’ derivatives markets, will likely knuckle down on financial and consumer protection policies, four securities lawyers, some of whom are former regulators, told Business Insider.
At the same time, given his Wall Street roots, Gensler’s tough approach could be, at the very least, acknowledged by banks who recognize him as one of their own — even as he “ruffled a lot of feathers” by imposing strict rules in the wake of the 2008 financial crisis, per one expert — and ultimately lead to the development of a healthier market.
Gensler has a decades-long track record as a hard-knuckle regulator
There’s no doubt that Gensler is well suited to the task, according to securities experts.
“He obviously has the necessary background,” said James Cain, partner at Eversheds Sutherland. “Gensler has the most well-rounded set of experiences: He’s worked on Wall Street, the Treasury, the Hill, academia… He’s covered all the bases.”
Before launching his two-decade-long career as a fearsome regulator, Gensler spent 18 years as a star banker at Goldman Sachs, eventually becoming one of the youngest partners at 30 years old.
He traded his life in investment banking for public service in 1997, when Gensler joined the United States Department of Treasury. During his four-year tenure, he pushed for the passage of the Commodity Futures Modernization Act, which exempted over-the-counter derivatives from regulation.
Gensler then began advocating for policies that called for stricter regulation, playing an instrumental role in the 2002 Sarbanes-Oxley Act, which was designed to protect investors by imposing disclosure requirements on companies.
Gensler ultimately cemented his reputation as a fearsome and “zealous regulator” when he was tapped by then-President-elect Barack Obama to lead the CFTC in December 2008, said Cain. He described how Gensler transformed the CFTC from a once-sleepy agency into a regulatory body with “substantially greater authority,” orchestrating several key provisions of the Dodd-Frank Act, the 2010 instrumental law that overhauled financial regulation and was largely seen as a crackdown on Wall Street, including implementing regulation of swaps and other derivatives that played a role in the financial crisis.
He was also credited with revitalizing the agency’s enforcement of cases, specifically over investment banks’ manipulation of Libor, the London interbank offered rate, in 2012.
Although he’ll undoubtedly enact tougher regulations, Gensler, as “one of Wall Street’s own,” is recognized by banks as someone who knows the industry
Gensler’s banking roots and policymaking background present a double-edged sword when it comes to deciphering how he’ll be received by financial institutions.
“On the one hand, Wall Street is comforted by the fact that he at least came from their background and knows them, and is not out to destroy them,” said Robert Litan, former principal deputy assistant attorney general in the antitrust division of the Justice Department. “On the other hand, Gary was known as the top regulator. He’s not the kind of person who’s going to lay down and let them walk all over him.”
Aitan Goelman, who headed the CFTC’s enforcement division under Gensler’s successor, Timothy Massad, in 2014, told Business Insider that while Gensler, who “ruffled a lot of feathers” with his “aggressive style and substance,” likely won’t be welcomed by banks, he at least understands the real needs of banks.
“He knows what would be a death sentence or deal breaker,” Goelman said.
Trace Schmeltz, a partner who heads Barnes & Thornburg’s financial and regulatory litigation group, agrees that even though Gensler undoubtedly will favor stricter regulation, he’s not going to “gum up the mechanism.”
“He’s one of Wall Street’s own,” Schmeltz said. “Even though he has a heavier hand with regulation than some might like, people count on him to do what he does with a real insider’s working knowledge of the industry.”
Evershed Sutherland’s Cain used a “reform smoker” analogy to describe how he thinks that Gensler, with his nearly 20 years at Goldman, will be “harder on the street” than someone who hasn’t been there. “People shouldn’t think he’s going to go easy on them. He did lead the CFTC, after all,” Cain said.
Under Gensler’s oversight, regulatory agencies will “get their teeth back,” leading to a healthier and more innovative market
The last four years have seen a “significant dismantling” of regulatory agencies like the CFTC and the Securities & Exchange Commission, by the Trump administration refusing to either fill positions at these agencies, or meet funding requests, according to Schmeltz.
With an increased emphasis on consumer protection under Gensler’s oversight, the Consumer Financial Protection Bureau, which had been “defanged” in the last four years, will “get their teeth back,” added Litan.
Both Litan and Schmeltz think that Gensler, who is known for his savvy knowledge of cryptocurrency and blockchain and how these technologies relate to the financial industries, will also bring about more innovation to the market, which has seen major disruption in the last four years by the monumental rise of the fintech industry.
Ultimately, all experts agree that stricter regulations under the prospective Biden administration will lead to a healthier, more trustworthy market. Banks recognize that these rules act as “guardrails,” designed to help them limit their exposure to liability, explained Cain.
“Everyone’s going to need to mind their p’s and q’s under the Biden administration much more than they had to do in a Trump administration,” said Schmeltz. “But by and large, organizations understand that they have an obligation to do things correctly… In the main, this will be better for the markets, because there will be more transparency, trust, and credibility.”