Buck Stops Well Short of the President at FDIC’s Byzantine Enforcement Program

William Yeatman, Ilya Shapiro, and Christian Townsend

In a word, the Appointments Clause is about accountability. It’s a constitutional limit on the diffusion of power, so the public can know where the proverbial buck stops. To this end, the clause establishes a chain of command of executive branch officers who answer to the president.

Yet the Founders’ framework for accountability has broken down at the Federal Deposit Insurance Corporation’s system of in‐​house courts, which the agency uses to regulate the banking industry, including the imposition of immense monetary penalties and lifetime bans on employment. Through an intricate web of bureaucracy, the FDIC’s resident judges are rendered immune from presidential oversight. After going through the wringer of FDIC’s byzantine proceedings, regulated parties are left wondering: Where does the buck stop?

That was the question on Harry Calcutt’s mind. Mr. Calcutt, a Michigan banker, was prosecuted by the agency’s in‐​house courts for alleged violations of federal regulations in the wake of the Great Recession. After years of proceedings, the FDIC fined Mr. Calcutt $125,000 and banned him from the banking industry.

Late last December, Mr. Calcutt challenged the FDIC’s order against him in the Sixth Circuit. In addition to maintaining that he had committed no regulatory violations, Mr. Calcutt also argues that the FDIC’s in‐​house courts are unconstitutionally attenuated from presidential oversight. In early January, the court took the unusual action of pausing the implementation of the penalties against Mr. Calcutt. Now, the court is considering the merits of his underlying challenge.

This week, the Cato Institute filed a brief in support of Mr. Calcutt. We argue that the FDIC’s adjudicative regime clearly runs afoul of the Supreme Court’s concurrent frameworks for reviewing the permissibility of restrictions on the president’s authority to remove “inferior officers.”