Trump's Pick for Bank Watchdog Ripped for Pre-Crisis Performance

GOP lawmakers also liked that Quarles and Otting said it’s time to take a fresh look at regulations imposed on banks after the crisis, including capital and leverage rules that Wall Street blames for unnecessarily curtailing lending and hurting profits. The two nominees are likely to be confirmed because Republicans can approve them without any Democratic support.

Otting spent much of the hearing defending his tenure as chief executive officer of OneWest Bank, a lender that foreclosed on tens of thousands of homes in the years after the housing bust. OneWest had a “very low error rate” in its handling of troubled mortgages, Otting said, adding that he prefers to focus on the fact that a majority of the bank’s borrowers were able to remain in their homes. Treasury Secretary Steven Mnuchin was OneWest’s chairman when Otting ran the lender.  

Hurting Seniors

“Mr. Otting’s bank made money by kicking seniors out of their homes, and then turned around and said the government made them do it,” Senator Brown said.

Senator Elizabeth Warren, a Massachusetts Democrat well-known for sparring with financial executives, said Quarles’ time at Treasury is “not a track record that should give Americans a whole lot of confidence in you.” Arguing that he’s shown no willingness to take on the industry, she tried to get him to admit that his views are in lockstep with Wall Street. Quarles’ careful responses to her questions revealed little about his plans.

He did say he favors giving banks a lot more information about how the Fed conducts its annual stress tests that measure big lenders’ ability to weather a hypothetical crisis. Quarles added that he also supports simplifying the Volcker Rule, which restricts lenders from investing with their own money.

Quarles and Otting agreed that the insurance industry is less likely than banks to pose a risk to the financial system. That position could be important as the Financial Stability Oversight Council that they’ll be members of rethinks whether insurers deserve tough oversight. FSOC has power to label companies “systemically important,” a label that subjects them to greater scrutiny than other firms.

Both Quarles and Otting have amassed substantial wealth from the finance industry they’ve now been tasked to regulate, according to their financial disclosures. They each pledged to shed millions in bank stocks before they join the government, and Quarles said he’d sell stakes in several lenders he obtained during his private-equity career.