Issue 1

The Federal Reserve (“the Fed”) can remove bankers from office if they violate the law, engage in unsafe or unsound practices, or breach their fiduciary duties. The Fed, however, has used this power so rarely that few even realize it exists. Although major U.S. banks have admitted to repeated and flagrant lawbreaking in recent years, the Fed has never removed a senior executive from one of these institutions.

This Article offers the first comprehensive account of the banker removal power. It makes four contributions. First, drawing on a range of primary sources, it recovers the power’s statutory foundations, showing that Congress created the authority to better align the interests of senior bankers and the public. Second, using a novel dataset obtained through Freedom of Information Act requests, it maps the actual practice of banker removal—who is removed, how often removal occurs, and for what reasons. It reveals that the Fed now uses the removal power mostly to prevent already-terminated, low-level employees from working at other banks, even though Congress never intended for the power to be used primarily in this way. Third, harnessing corporate law theory, the Article defends the legislative design. It argues that removal of senior bank executives for unsound management practices is a critical component of effective bank supervision, filling gaps left by regulatory rules and traditional corporate governance measures. Finally, the Article concludes by assessing obstacles to the use of the removal power against bank leadership and suggesting policy responses.

Introduction

Many observers have wondered why the Department of Justice (“DOJ”) did not prosecute more high-level executives following the 2008 financial crisis.¹ 1.See, e.g., Jesse Eisinger, The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives xvi–xvii, at xxi (2017); Jed S. Rakoff, The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?, N.Y. Rev. Books, Jan. 2014, at 4–8; William D. Cohan, How the Bankers Stayed Out of Jail, Atlantic, Sept. 2015, at 20; Dorothy S. Lund & Natasha Sarin, The Cost of Doing Business: Corporate Crime and Punishment Post-Crisis (unpublished manuscript) (on file with authors); see also John C. Coffee, Jr., Corporate Crime and Punishment: The Crisis of Underenforcement, at ix–x, 2–6, 13–14 (2020); Brandon L. Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations 5, 18 (2014).Show More Some argue that the paucity of indictments was the product of soft corruption or the government’s fear of challenging deep-pocketed defendants.² 2.See Rakoff, supra note 1, at 4, 6 (critiquing the Justice Department’s rationales for not prosecuting bank executives); Eisinger, supra note 1, at xx, 228, 233 (citing revolving door practices at the Justice Department and the risk aversion of prosecutors). For other commentary on prosecutors’ failure to charge executives in connection with the 2008 crisis, see Coffee, supra note 1, at 13 (arguing that the lack of prosecution “results chiefly from the logistical mismatch between the government’s limited enforcement resources and the nearly limitless capacity of the large corporation to resist and delay”); Garrett, supra note 1, at 6, 45–80 (showing how public corporations were able to escape criminal prosecution through the use of deferred prosecution agreements).Show More Others attribute it to the absence of executive-level criminal offenses: to them 2008 “was a bubble, not a fraud.”³ 3.Coffee, supra note 1, at 4 (collecting sources).Show More Missing has been any discussion of why the Board of Governors of the Federal Reserve System (“the Fed”)—the country’s leading bank supervisor—failed to remove even a single top bank executive in connection with the crisis. This civil remedy—the “banker removal power”—allows the Fed to fire bank officers, directors, and employees for “unsafe or unsound practices” and to prohibit them from working in banking.⁴ 4.12 U.S.C. § 1818(e). A brief definitional point: current law authorizes the Fed to remove sitting bankers as well as to temporarily suspend them or permanently prohibit them from working in banking (even if they have already been terminated). This Article uses the terms “removal power” and “removal action” broadly to encompass all three sanctions.Show More It was a core part of Franklin D. Roosevelt’s financial reform agenda.⁵ 5.See infra Section I.A.Show More And it was designed precisely to allow the Fed to prevent an economic collapse of the sort experienced in 2008.

The mystery deepens when one considers the remarkable breadth of wrongdoing that has surfaced since the 2008 crisis. In the past twenty years, America’s largest banks have settled hundreds of major lawsuits and paid an unprecedented $195 billion in fines and penalties.⁶ 6.See, e.g., Laura Noonan, US Banks Rack Up $200bn in Fines and Penalties over 20 Years, Fin. Times (Dec. 24, 2020), https://www.ft.com/content/989035f3-767a-43c2-b12e-2f6c0be0aa6b [https://perma.cc/R29R-AQT6].Show More They have admitted to fraud, bribery, money laundering, price fixing, bid rigging, illegal kickbacks, discriminatory lending, and a host of other consumer protection violations.⁷ 7.See Better Markets, Wall Street’s Crime Spree 1998–2020: 395 Major Legal Actions and $195+ Billion in Fines and Settlements over the Last 20 Years, at 2 (Jan. 13, 2021).Show More In 2019, the DOJ labeled one trading desk at JPMorgan Chase a “criminal enterprise.”⁸ 8.Tom Schoenberg & David Voreacos, JPMorgan’s Metals Desk Was a Criminal Enterprise, U.S. Says, Bloomberg (Sept. 16, 2019), https://www.bloomberg.com/news/articles/2019-09-16/jpmorgan-s-metals-desk-was-a-criminal-enterprise-u-s-says [https://perma.cc/FW3C-QC99].Show More Yet during this period, the Fed did not remove a single senior executive of Chase or any other major U.S. bank.

Instead, the Fed used its removal power mostly to exclude rogue low-level employees from the banking business for isolated instances of misconduct. For example, in the early 2000s, SunTrust Bank fired Roslyn Terry for stealing $21,200 while working as a teller.⁹ 9.Prohibition Ord., Roslyn Y. Terry, Bd. of Governors of the Fed. Rsrv. Sys. No. 08-016-E-I (Aug. 29, 2008).Show More Following her termination, the Fed banned Terry from working at a bank ever again.¹⁰ 10.Id.Show More The Fed’s ban had no impact on SunTrust, its management, or its practices, nor was it intended to. Primarily, it signaled Terry’s lack of fitness to other banks and potential employers.

Terry’s case—and the lack of executive removals in recent years—was not always the norm. In the early 1990s, the Fed used its removal power primarily against bank leadership. Between 1989 and 1993—the first five years for which enforcement data is publicly available—over 75% of domestic removal orders issued by the Fed targeted presidents, chief executive officers, board chairmen, and board directors. But as the banking industry consolidated in the subsequent decade, the Fed’s enforcement focus shifted toward rank-and-file workers, especially those who had already been fired by their employers and no longer worked at a bank. Over the five years ending in 2019, 72% of domestic removal actions by the Fed barred low- and mid-level employees who had already been terminated.¹¹ 11.See Compiled Data on Removal Orders Completed by the Bd. of Governors of the Fed. Rsrv. Sys. (on file with authors) [hereinafter Removal Orders].Show More

Scholars and policymakers have failed to notice this change or appreciate its significance.¹² 12.There is little scholarship on the removal power, and the scholarship that does exist is dated. See Joseph M. Korff, Banking, 8 B.C. Indus. & Com. L. Rev. 599, 600 (1967) (describing the effect of the Financial Institutions Supervisory Act of 1966 on the removal power); Robert J. Basil, Suspension and Removal of Bank Officials Under the Financial Institutions Reform Recovery and Enforcement Act of 1989 (“FIRREA”), 18 J. Legis. 1, 2 (1991) (discussing the effect of recent amendments on removal actions from the perspective of the private bar). One exception is work by Professor Heidi Schooner who considers removal in the context of disparate enforcement policies for large and small banks. See Heidi Mandanis Schooner, Big Bank Boards: The Case for Heightened Administrative Enforcement, 68 Ala. L. Rev. 1011, 1013, 1024–27 (2017).Show More There has been little effort to date to explain why the Fed has a removal power or to consider how the Fed should use it.¹³ 13.The power is similarly neglected by corporate governance scholars and unknown to the voluminous administrative law literature focused on the President’s power to remove independent agency heads. See, e.g., Cass R. Sunstein & Adrian Vermeule, Presidential Review: The President’s Statutory Authority over Independent Agencies, 109 Geo. L.J. 637 (2021); Ganesh Sitaraman, The Political Economy of the Removal Power, 134 Harv. L. Rev. 352, 354 (2020); Gillian E. Metzger, The Constitutional Duty to Supervise, 124 Yale L.J. 1836, 1880–81 (2015); Kirti Datla & Richard L. Revesz, Deconstructing Independent Agencies (and Executive Agencies), 98 Cornell L. Rev. 769, 772 (2013); Lawrence Lessig & Cass R. Sunstein, The President and the Administration, 94 Colum. L. Rev. 1, 110 (1994).Show More The absence of the power in the literature is particularly surprising given the salience and frequency of lawbreaking by banks and the ensuing public outrage toward bank executives.¹⁴ 14.See, e.g., Letter from Elizabeth Warren, Ranking Member, Senate Subcomm. on Fin. Inst. & Consumer Prot., to Janet Yellen, Chair, Fed. Rsrv. Bd. of Governors (June 19, 2017) [hereinafter Letter from Elizabeth Warren].Show More

This Article seeks to give the banker removal power a seat back at the table. It makes four contributions. The first is historical. Through original research, Part I reconstructs the statutory development of the banker removal power. It highlights the power’s animating conception of bank executives as public fiduciaries and reveals that banker removal is not just another remedial tool in the Fed’s toolkit. Removal is the legal foundation for modern bank supervision, a distinctive form of government oversight that proceeds through continuous, confidential engagement between bankers and government officials. Policymakers first proposed the power in the late nineteenth century as a way to enhance the government’s supervisory control of banks. And Congress granted the Fed the power in 1933 in an effort to preserve an institutional arrangement for expanding the money supply that relies on deposit money issued by privately run banks.¹⁵ 15.See Lev Menand, Why Supervise Banks? The Foundations of the American Monetary Settlement, 74 Vand. L. Rev. 951, 958, 1004 (2021).Show More Congress hoped that if the Fed had the power to remove untrustworthy bank leaders, banks would heed informal supervisory directives and better serve public as well as private interests.¹⁶ 16.Bank supervision has been the subject of a surge of recent scholarly attention. See, e.g., id.; Daniel K. Tarullo, Bank Supervision and Administrative Law, Colum. Bus. L. Rev. (forthcoming) (unpublished manuscript) (on file with authors), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3743404 [https://perma.cc/ZY2P-3EXR]; see also Julie Andersen Hill, Bank Supervision: A Legal Scholarship Review (forthcoming) (U. Ala. Legal Stud., Research Paper No. 2627472), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3777580 [https://perma.cc/5752-7XHC]; Event Overview Bank Supervision: Past, Present, and Future, Fed. Rsrv. Bd. of Governors, Wharton Sch. & Harv. L. Sch. (Dec. 11, 2020), https://events.stlouisfed.org/event/67aec69c-628d-459d-8366-466979e3f8af/summary; Lev Menand, Too Big to Supervise: The Rise of Financial Conglomerates and the Decline of Discretionary Oversight in Banking, 103 Cornell L. Rev. 1527 (2018); Julie Andersen Hill, When Bank Examiners Get It Wrong: Financial Institution Appeals of Material Supervisory Determinations, 92 Wash. U. L. Rev. 1101, 1105 (2015). This growth is due in part to an active debate inside and outside the government over supervision’s legitimacy as a mode of administrative governance. See Jeremy Kress, Notice & Comment, The War on Bank Supervision, Yale J. Regul. (Dec. 18, 2020); Peter Conti-Brown & Nicholas R. Parrillo, Supervision, Stress Tests, and the Administrative Procedure Act (unpublished manuscript) (on file with authors); Randal Quarles, Vice Chair, Bd. of Governors of the Fed. Rsrv. Sys., Remarks at the “Law and Macroeconomics” Conference at Georgetown University Law Center: Law and Macroeconomics: The Global Evolution of Macroprudential Regulation 12 (Sept. 27, 2019). Part I of this Article introduces removal law to the supervision literature and adds to the debate by recovering a portion of supervision’s legal foundations. It reveals, among other things, that removal law treats banks as public franchises, complicating contemporary efforts by critics of bank supervision to characterize banks as purely private enterprises.Show More

In 1966, Congress gave the banking agencies a further tool to strengthen supervision—the cease-and-desist order—and rolled back removal, limiting it to situations involving “dishonesty.”¹⁷ 17.See infra Section II.B.Show More In 1978, concerned by evidence of increasing executive malfeasance, Congress reversed course, allowing for removal even in cases not involving dishonesty.¹⁸ 18.See Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183, § 904 (codified as amended at 12 U.S.C. § 1818).Show More Removals accelerated, and in the wake of hundreds of costly bank failures in the late 1980s, Congress further expanded the removal power in 1989. Today, the power exists at its broadest scope. Any institution-affiliated party is subject to sanction; a removal may result in a lifetime prohibition from banking; and willful or continuing “unsafe or unsound” conduct, even in the absence of fraud, suffices to justify enforcement.

This Article’s second contribution is analytic, picking up the story after 1989 and bringing it to the present. Part II introduces a novel dataset on the Fed’s removal actions between 1989 and 2019 using public information as well as orders obtained through Freedom of Information Act (“FOIA”) requests.¹⁹ 19.The Fed is not the only bank regulator with the power to remove bank employees and affiliates. Little is currently known about how the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) use their parallel power—whom they remove and for what conduct. Given the breadth of their supervisory jurisdictions, their practices are worthy of future study.Show More Details about the individuals sanctioned and their wrongdoing were hand collected from case files and contemporaneous news accounts and matched with bank characteristics.

The data reveal that the Fed uses its removal power sparingly, averaging 7.2 actions per year over the past 31 years. Even less common are Fed removals of sitting bank employees; 91% of Fed removal orders ban people who are no longer working at banks, blocking them from returning in the future. More notably, since the late 1990s, the Fed has deployed its power, now codified at 12 U.S.C. § 1818(e), primarily against rank-and-file workers for activities already subject to criminal penalties. For example, the most common reason for removal during this period was embezzlement or misuse of funds. In only three instances has the Fed used its removal power to address poor oversight and reckless management, and two of these instances involved employees of the same bank who jointly supervised a rogue trader. The Fed’s other 187 removal actions all targeted individuals who directly participated in unlawful activities.²⁰ 20.These results align with qualitative accounts of the Fed’s supervisory rollback in the late 1990s and early 2000s. See, e.g., Menand, supra note 16, at 1541, 1574. They also provide empirical evidence for concerns about the government’s enforcement posture toward senior corporate executives. See, e.g., Coffee, supra note 1, at 2.Show More

The Article’s third contribution is theoretical. Part III argues that a credible threat of removal against senior bank executives for unsound management practices is an indispensable component of contemporary bank supervision. Traditional corporate governance measures, which focus on enhancing the accountability of senior bankers to shareholders, will not eliminate incentives for banks to engage in socially harmful risk taking. Shareholders have strong incentives to exploit banks’ government backstopping and extract wealth from the public by encouraging investment in risky assets. No matter how carefully constructed, regulatory rules and statutory provisions that directly restrict the menu of choices available to banks are backward looking, crude, and inevitably incomplete.²¹ 21.We use Dan Tarullo’s term “regulatory rules” to describe strictures promulgated through notice-and-comment in order to differentiate them from “regulation,” which we use to refer to all manner of government oversight. See Tarullo, supra note 16.Show More

This Article therefore joins a growing body of scholarship in recognizing that corporate governance reforms and prudential regulatory rules have limited capacity to curb unsafe bank behavior.²² 22.See infra Sections III.A–B; see also Jonathan R. Macey & Maureen O’Hara, The Corporate Governance of Banks, 9 Fed. Rsrv. Bank N.Y. Econ. Pol’y Rev. 91, 97–99 (2003) (observing that banks have “special corporate governance problems” that “weaken the case for making shareholders the exclusive beneficiaries of fiduciary duties”); Lucian A. Bebchuk & Holger Spamann, Regulating Bankers’ Pay, 98 Geo. L.J. 247, 255–61 (2010) (observing the same problem and detailing how features of modern banking organizations heightened the basic moral hazard problems); Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 4 (2016) (describing the “misalignment” between shareholders’ interests and the public’s interest in systemically important firms); John C. Coffee, Jr., Systemic Risk After Dodd-Frank: Contingent Capital and the Need for Regulatory Strategies Beyond Oversight, 111 Colum. L. Rev. 795, 807 (2011) (noting that “the more ‘shareholder friendly’ the firm’s corporate governance system, the less attention is likely to be paid to externalities, and the greater the exposure to volatility and systemic risk”). See generally Dan Awrey & Kathryn Judge, Why Financial Regulation Keeps Falling Short, 61 B.C. L. Rev. 2295, 2299–300 (2020) (summarizing the literature on “why financial regulation so often falls short” and contributing additional explanations).Show More But contrary to the emerging view, we do not conclude from this diagnosis that entirely new regulatory methods are needed.²³ 23.For examples of this emerging view, see Schwarcz, supra note 22, at 23–44 (arguing that “managers should have a public governance duty not to engage their firms in excessive risk-taking that leads to [systemic] externalities”); Macey & O’Hara, supra note 22, at 92 (contending that “directors and officers of banks should be charged with a heightened duty to ensure the safety and soundness of these enterprises[, which] . . . should not run exclusively to shareholders”); Coffee, supra note 22, at 834–35 (proposing a contingent capital mechanism that would, in part, serve the function of giving creditors’ voting powers once the bank is in the “vicinity of insolvency”); John Armour & Jeffrey N. Gordon, Systemic Harms and Shareholder Value, 6 J. Legal Analysis 35, 67–70 (2014) (arguing that Caremark liability for oversight failure should be “applied in wider circumstances and to a higher standard” in banks and other systemically important financial firms); Saule T. Omarova, Bank Governance and Systemic Stability: The “Golden Share” Approach, 68 Ala. L. Rev. 1029, 1032, 1043–51 (2017) (arguing for a “golden share” regime that would “giv[e] the federal government a seat on the board of each systemically important banking organization”); Saule T. Omarova, Bankers, Bureaucrats, and Guardians: Toward Tripartism in Financial Services Regulation, 37 J. Corp. L. 621, 658–69 (2012) [hereinafter Omarova, Bankers, Bureaucrats, and Guardians] (proposing the creation of a Public Interest Council that would function to “represent the public interest in preserving financial stability and minimizing systemic risk”); Ross Levine, The Governance of Financial Regulation: Reform Lessons from the Recent Crisis, 12 Int’l Rev. Fin. 39, 41–42 (2012) (proposing a new regulatory entity “to act as the public’s sentry over financial policies and to help compel financial regulators to act in the public interest, regardless of their private interests”); see also Daniel K. Tarullo, Member, Bd. of Governors of the Fed. Rsrv. Sys., Remarks at the Association of American Law Schools Midyear Meeting: Corporate Governance and Prudential Regulation 11–17 (June 9, 2014), https://www.federalreserve.gov/newsevents/‌speech/tarullo20140609a.htm [https://perma.cc/9QMX-A32B] (proposing mechanisms to align corporate governance at banks with public objectives, including: changing the incentives of decision makers; restricting dividends under certain circumstances; reforming the institutions and processes of corporate decision making; and amending the fiduciary duties of bank boards).Show More Instead, we argue that regulators already have a tool that would allow them to reorient bank managers’ incentives toward the public interest. Section 1818(e) can serve this role. A credible threat of removal permits the Fed to keep senior executives and directors in line by prioritizing its judgment over that of private shareholders in order to improve the safety of the banking system as a whole. It also bolsters ongoing government supervision of banks by ensuring that Fed officials do not need to continue to rely on bank managers whom they no longer trust.

The Article’s final contribution is prescriptive. The removal power has failed to achieve its full potential to improve bank governance because the Fed rarely removes senior bankers. Part IV examines how the current statutory design enables this trend and recommends changes. In particular, it shows that the removal power was last updated before the emergence of large financial conglomerates and thus is out of sync with the reality of modern banking. Bank executives now serve in oversight, rather than operational, roles. Because the removal power relies on a single culpability standard that applies in blanket fashion to all bankers along the corporate hierarchy, regardless of their varied roles and responsibilities, it substantially raises the difficulty of removing bank leadership relative to lower-level subordinates. Accordingly, Part IV argues that Congress should expressly recognize oversight failure as a removal ground. In addition, the Fed should revise its practice of imposing uniform removal terms for all cases, instead varying the scope and duration of removal according to the type of wrongdoing at issue.

Banker removal can be a powerful tool for strengthening bank governance. It can even work silently, with few if any formal actions. But the law only works if bankers believe they will be removed for breaking the law or jeopardizing the public’s interest in a safe and sound banking system. The evidence suggests that, at the most senior levels of the banking industry, removal has ceased to fulfill this function. By providing a comprehensive account of the removal power in theory and practice, this Article takes a first step toward its renewal.

1. See, e.g., Jesse Eisinger, The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives xvi–xvii, at xxi (2017); Jed S. Rakoff, The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?, N.Y. Rev. Books, Jan. 2014, at 4–8; William D. Cohan, How the Bankers Stayed Out of Jail, Atlantic, Sept. 2015, at 20; Dorothy S. Lund & Natasha Sarin, The Cost of Doing Business: Corporate Crime and Punishment Post-Crisis (unpublished manuscript) (on file with authors); see also John C. Coffee, Jr., Corporate Crime and Punishment: The Crisis of Underenforcement, at ix–x, 2–6, 13–14 (2020); Brandon L. Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations 5, 18 (2014). ↑
2. See Rakoff, supra note 1, at 4, 6 (critiquing the Justice Department’s rationales for not prosecuting bank executives); Eisinger, supra note 1, at xx, 228, 233 (citing revolving door practices at the Justice Department and the risk aversion of prosecutors). For other commentary on prosecutors’ failure to charge executives in connection with the 2008 crisis, see Coffee, supra note 1, at 13 (arguing that the lack of prosecution “results chiefly from the logistical mismatch between the government’s limited enforcement resources and the nearly limitless capacity of the large corporation to resist and delay”); Garrett, supra note 1, at 6, 45–80 (showing how public corporations were able to escape criminal prosecution through the use of deferred prosecution agreements). ↑
3. Coffee, supra note 1, at 4 (collecting sources). ↑
4. 12 U.S.C. § 1818(e). A brief definitional point: current law authorizes the Fed to remove sitting bankers as well as to temporarily suspend them or permanently prohibit them from working in banking (even if they have already been terminated). This Article uses the terms “removal power” and “removal action” broadly to encompass all three sanctions. ↑
5. See infra Section I.A. ↑
6. See, e.g., Laura Noonan, US Banks Rack Up $200bn in Fines and Penalties over 20 Years, Fin. Times (Dec. 24, 2020), https://www.ft.com/content/989035f3-767a-43c2-b12e-2f6c0be0aa6b [https://perma.cc/R29R-AQT6]. ↑
7. See Better Markets, Wall Street’s Crime Spree 1998–2020: 395 Major Legal Actions and $195+ Billion in Fines and Settlements over the Last 20 Years, at 2 (Jan. 13, 2021). ↑
8. Tom Schoenberg & David Voreacos, JPMorgan’s Metals Desk Was a Criminal Enterprise, U.S. Says, Bloomberg (Sept. 16, 2019), https://www.bloomberg.com/news/articles/2019-09-16/jpmorgan-s-metals-desk-was-a-criminal-enterprise-u-s-says [https://perma.cc/FW3C-QC99]. ↑
9. Prohibition Ord., Roslyn Y. Terry, Bd. of Governors of the Fed. Rsrv. Sys. No. 08-016-E-I (Aug. 29, 2008). ↑
10. Id. ↑
11. See Compiled Data on Removal Orders Completed by the Bd. of Governors of the Fed. Rsrv. Sys. (on file with authors) [hereinafter Removal Orders]. ↑
12. There is little scholarship on the removal power, and the scholarship that does exist is dated. See Joseph M. Korff, Banking, 8 B.C. Indus. & Com. L. Rev. 599, 600 (1967) (describing the effect of the Financial Institutions Supervisory Act of 1966 on the removal power); Robert J. Basil, Suspension and Removal of Bank Officials Under the Financial Institutions Reform Recovery and Enforcement Act of 1989 (“FIRREA”), 18 J. Legis. 1, 2 (1991) (discussing the effect of recent amendments on removal actions from the perspective of the private bar). One exception is work by Professor Heidi Schooner who considers removal in the context of disparate enforcement policies for large and small banks. See Heidi Mandanis Schooner, Big Bank Boards: The Case for Heightened Administrative Enforcement, 68 Ala. L. Rev. 1011, 1013, 1024–27 (2017). ↑
13. The power is similarly neglected by corporate governance scholars and unknown to the voluminous administrative law literature focused on the President’s power to remove independent agency heads. See, e.g., Cass R. Sunstein & Adrian Vermeule, Presidential Review: The President’s Statutory Authority over Independent Agencies, 109 Geo. L.J. 637 (2021); Ganesh Sitaraman, The Political Economy of the Removal Power, 134 Harv. L. Rev. 352, 354 (2020); Gillian E. Metzger, The Constitutional Duty to Supervise, 124 Yale L.J. 1836, 1880–81 (2015); Kirti Datla & Richard L. Revesz, Deconstructing Independent Agencies (and Executive Agencies), 98 Cornell L. Rev. 769, 772 (2013); Lawrence Lessig & Cass R. Sunstein, The President and the Administration, 94 Colum. L. Rev. 1, 110 (1994). ↑
14. See, e.g., Letter from Elizabeth Warren, Ranking Member, Senate Subcomm. on Fin. Inst. & Consumer Prot., to Janet Yellen, Chair, Fed. Rsrv. Bd. of Governors (June 19, 2017) [hereinafter Letter from Elizabeth Warren]. ↑
15. See Lev Menand, Why Supervise Banks? The Foundations of the American Monetary Settlement, 74 Vand. L. Rev. 951, 958, 1004 (2021). ↑
16. Bank supervision has been the subject of a surge of recent scholarly attention. See, e.g., id.; Daniel K. Tarullo, Bank Supervision and Administrative Law, Colum. Bus. L. Rev. (forthcoming) (unpublished manuscript) (on file with authors), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3743404 [https://perma.cc/ZY2P-3EXR]; see also Julie Andersen Hill, Bank Supervision: A Legal Scholarship Review (forthcoming) (U. Ala. Legal Stud., Research Paper No. 2627472), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3777580 [https://perma.cc/5752-7XHC]; Event Overview Bank Supervision: Past, Present, and Future, Fed. Rsrv. Bd. of Governors, Wharton Sch. & Harv. L. Sch. (Dec. 11, 2020), https://events.stlouisfed.org/event/67aec69c-628d-459d-8366-466979e3f8af/summary; Lev Menand, Too Big to Supervise: The Rise of Financial Conglomerates and the Decline of Discretionary Oversight in Banking, 103 Cornell L. Rev. 1527 (2018); Julie Andersen Hill, When Bank Examiners Get It Wrong: Financial Institution Appeals of Material Supervisory Determinations, 92 Wash. U. L. Rev. 1101, 1105 (2015). This growth is due in part to an active debate inside and outside the government over supervision’s legitimacy as a mode of administrative governance. See Jeremy Kress, Notice & Comment, The War on Bank Supervision, Yale J. Regul. (Dec. 18, 2020); Peter Conti-Brown & Nicholas R. Parrillo, Supervision, Stress Tests, and the Administrative Procedure Act (unpublished manuscript) (on file with authors); Randal Quarles, Vice Chair, Bd. of Governors of the Fed. Rsrv. Sys., Remarks at the “Law and Macroeconomics” Conference at Georgetown University Law Center: Law and Macroeconomics: The Global Evolution of Macroprudential Regulation 12 (Sept. 27, 2019). Part I of this Article introduces removal law to the supervision literature and adds to the debate by recovering a portion of supervision’s legal foundations. It reveals, among other things, that removal law treats banks as public franchises, complicating contemporary efforts by critics of bank supervision to characterize banks as purely private enterprises. ↑
17. See infra Section II.B. ↑
18. See Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183, § 904 (codified as amended at 12 U.S.C. § 1818). ↑
19. The Fed is not the only bank regulator with the power to remove bank employees and affiliates. Little is currently known about how the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) use their parallel power—whom they remove and for what conduct. Given the breadth of their supervisory jurisdictions, their practices are worthy of future study. ↑
20. These results align with qualitative accounts of the Fed’s supervisory rollback in the late 1990s and early 2000s. See, e.g., Menand, supra note 16, at 1541, 1574. They also provide empirical evidence for concerns about the government’s enforcement posture toward senior corporate executives. See, e.g., Coffee, supra note 1, at 2. ↑
21. We use Dan Tarullo’s term “regulatory rules” to describe strictures promulgated through notice-and-comment in order to differentiate them from “regulation,” which we use to refer to all manner of government oversight. See Tarullo, supra note 16. ↑
22. See infra Sections III.A–B; see also Jonathan R. Macey & Maureen O’Hara, The Corporate Governance of Banks, 9 Fed. Rsrv. Bank N.Y. Econ. Pol’y Rev. 91, 97–99 (2003) (observing that banks have “special corporate governance problems” that “weaken the case for making shareholders the exclusive beneficiaries of fiduciary duties”); Lucian A. Bebchuk & Holger Spamann, Regulating Bankers’ Pay, 98 Geo. L.J. 247, 255–61 (2010) (observing the same problem and detailing how features of modern banking organizations heightened the basic moral hazard problems); Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 4 (2016) (describing the “misalignment” between shareholders’ interests and the public’s interest in systemically important firms); John C. Coffee, Jr., Systemic Risk After Dodd-Frank: Contingent Capital and the Need for Regulatory Strategies Beyond Oversight, 111 Colum. L. Rev. 795, 807 (2011) (noting that “the more ‘shareholder friendly’ the firm’s corporate governance system, the less attention is likely to be paid to externalities, and the greater the exposure to volatility and systemic risk”). See generally Dan Awrey & Kathryn Judge, Why Financial Regulation Keeps Falling Short, 61 B.C. L. Rev. 2295, 2299–300 (2020) (summarizing the literature on “why financial regulation so often falls short” and contributing additional explanations). ↑

23. For examples of this emerging view, see Schwarcz, supra note 22, at 23–44 (arguing that “managers should have a public governance duty not to engage their firms in excessive risk-taking that leads to [systemic] externalities”); Macey & O’Hara, supra note 22, at 92 (contending that “directors and officers of banks should be charged with a heightened duty to ensure the safety and soundness of these enterprises[, which] . . . should not run exclusively to shareholders”); Coffee, supra note 22, at 834–35 (proposing a contingent capital mechanism that would, in part, serve the function of giving creditors’ voting powers once the bank is in the “vicinity of insolvency”); John Armour & Jeffrey N. Gordon, Systemic Harms and Shareholder Value, 6 J. Legal Analysis 35, 67–70 (2014) (arguing that Caremark liability for oversight failure should be “applied in wider circumstances and to a higher standard” in banks and other systemically important financial firms); Saule T. Omarova, Bank Governance and Systemic Stability: The “Golden Share” Approach, 68 Ala. L. Rev. 1029, 1032, 1043–51 (2017) (arguing for a “golden share” regime that would “giv[e] the federal government a seat on the board of each systemically important banking organization”); Saule T. Omarova, Bankers, Bureaucrats, and Guardians: Toward Tripartism in Financial Services Regulation, 37 J. Corp. L. 621, 658–69 (2012) [hereinafter Omarova, Bankers, Bureaucrats, and Guardians] (proposing the creation of a Public Interest Council that would function to “represent the public interest in preserving financial stability and minimizing systemic risk”); Ross Levine, The Governance of Financial Regulation: Reform Lessons from the Recent Crisis, 12 Int’l Rev. Fin. 39, 41–42 (2012) (proposing a new regulatory entity “to act as the public’s sentry over financial policies and to help compel financial regulators to act in the public interest, regardless of their private interests”); see also Daniel K. Tarullo, Member, Bd. of Governors of the Fed. Rsrv. Sys., Remarks at the Association of American Law Schools Midyear Meeting: Corporate Governance and Prudential Regulation 11–17 (June 9, 2014), https://www.federalreserve.gov/newsevents/‌speech/tarullo20140609a.htm [https://perma.cc/9QMX-A32B] (proposing mechanisms to align corporate governance at banks with public objectives, including: changing the incentives of decision makers; restricting dividends under certain circumstances; reforming the institutions and processes of corporate decision making; and amending the fiduciary duties of bank boards). ↑