Federal prosecutor Loretta Lynch may soon replace Attorney General Eric Holder, but it appears that the country’s banks can breathe easy over the pending shake-up.
The White House formally named Lynch, a two-time U.S. attorney for the Eastern District of New York, on Saturday. She’s garnered a reputation in both the public and private sector as being smart, fair and apolitical, which likely boosts her chances for Senate confirmation either during the lame duck session or early next year when Republicans take control of the chamber.
It also decreases the odds that she’ll go after the big banks unduly — to score political points or win headlines.
“Banks should be breathing a sigh of relief — there was a risk that there could have been a nominee with much bigger political ambitions. That’s not what we got,” said Jaret Seiberg, an analyst at Guggenheim Securities.
President Obama underscored that point during a formal announcement this weekend.
“Loretta doesn’t look to make headlines, she looks to make a difference. She is not about splash, she is about substance,” he said.
Lynch, 55, worked her way up in the Brooklyn prosecutor’s office, which she’s now overseen twice, first under President Bill Clinton from 1999 to 2001 and again under Obama since 2010. Between those appointments she was a partner at Hogan Hartson (now Hogan Lovells), and she gained key financial experience as a member of the board of directors at the Federal Reserve Bank of New York from 2003 to 2005.
Supporters have so far lauded her poised, low-key demeanor and significant management experience.
“The resources of the DOJ, while vast, are still scare relatively speaking — how they should be deployed takes a good amount of judgment, and she brought that to bear in her two tenures in the Eastern District of New York,” said George Stamboulidis, the co-chair of BakerHostetler’s white collar defense and corporate investigations team, who previously worked with Lynch as a federal prosecutor and supervisory prosecutor.
He added: “She’s also got a broad background on important issues for financial institutions, as well as all the players in the financial system.”
Lynch’s nomination comes at a key time for the agency, which has come under fire from critics across the political spectrum who argue law enforcement should have done more to punish bank executives for the financial crisis.
The Justice Department has ramped up its activity against the big banks, winning civil and criminal settlements over tax evasion, money laundering and mortgage securities fraud. Lynch’s office was involved in several of those cases, including a $1.9 billion money laundering deal with HSBC in late 2012 and a $7 billion agreement with Citigroup earlier this year over the sale of shoddy mortgage securities.
“You’ve seen a pretty significant acceleration of cases over the past six months, much of which I view as Holder trying to clear the decks and cement his legacy before he leaves,” said Edward Mills, a policy analyst at FBR Capital Markets. “The hope for many within the financial community is that this is a turning of the page — the focus will be on the future, rather than unending litigation of the crisis.”
Observers noted there’s little reason to expect a major shift in strategy under Lynch over the next two years, until Obama’s term is up. That’s in part because Holder has already taken several big steps to ameliorate concerns that the law enforcement agency been too easy on major financial institutions — including bringing criminal charges against several institutions.
“Her record doesn’t suggest that she’d be afraid of indicting a bank, but I think we’ve probably crossed that rubicon already, so I’m not sure how much more downside there really is, and I’m not sure there was any likely nominee who would have been more sympathetic,” said Seiberg.
At the same time, critics warn that more needs to be done to hold bank executives accountable for wrongdoing and say they’re concerned that Lynch won’t take a tougher stance.
“There’s no lack of opportunities for a willing prosecutor, given what is just a historic crime spree on Wall Street,” said Dennis Kelleher, president and chief executive of advocacy group Better Markets. “The problem is that people who come out of those circumstances — traveling in the elite legal, business and social circles of New York — tend to believe the baseless, self-serving claims of the Wall Street elite.”
Cornelius Hurley, director of the Boston University Center for Finance, Law Policy, added that he’d like to see a “full vetting” of the Justice Department’s enforcement strategy against banks at Lynch’s confirmation hearing, which has yet to be scheduled.
“They’ve decided to go after shareholders with massive multibillion fines rather than the individuals, and she’s been part of that decision process,” he said.