Regulator of Wall Street Loses Its Hard-Charging Chairman

Gary Gensler squeezed into a Washington auditorium last month, mingling with the 300 guests at his farewell party and basking in the attention as a who’s who of finance recounted his campaign to rein in Wall Street risk-taking.

Treasury Secretary Jacob J. Lew, for one, described the chairman of the Commodity Futures Trading Commission as one of the leading reformers after the financial crisis, according to people who attended the event. Mark Wetjen, a commissioner at the agency who occasionally sparred with Mr. Gensler, remarked that a mutual friend was fond of calling him “a force of nature,” a depiction that elicited knowing nods from a crowd that included Ben S. Bernanke, the departing head of the Federal Reserve, and Jeffrey C. Sprecher, whose company owns the New York Stock Exchange.

But even as Mr. Gensler’s aggressive streak thrust the once-backwater agency into the front lines of reform, it also maddened colleagues and complicated his legacy. And now that his tenure is ending on Friday, the agency has reached an inflection point, prompting Wall Street to hope for a friendlier regulator.

President Obama has appointed Timothy G. Massad, a Treasury Department official with a blank slate for a regulatory agenda, as Mr. Gensler’s successor.

Aside from their slender frames and retreating hairlines, Mr. Massad and Mr. Gensler might bear little resemblance. While Mr. Gensler had his finger on every button, Mr. Massad could take a more conciliatory stance. Mr. Massad, who oversaw the winding down of the bank bailouts, will also face renewed pressure to appease lobbyists and congressional Republicans.

“There’s no question Wall Street sees an opening to roll back reform,” said Dennis M. Kelleher, the head of Better Markets, an advocacy group. “But Massad is no fool; he knows he’s going to be judged by the very high standards set by Gary Gensler.”

At the time of Mr. Massad’s appointment, Mr. Lew praised him as “determined to pursue reform that safeguards and advances the interests of hard-working Americans.”

President Obama added, “I have every confidence that he is the right man to lead an agency designed to prevent future crises.”

But further underscoring the uncertainty surrounding the agency, Mr. Gensler’s exit will be followed within weeks by the departure of Bart Chilton, a fellow Democratic commissioner who is an even harsher critic of Wall Street. Sharon Bowen, a corporate lawyer who represents private equity firms and other financial institutions, is poised to take Mr. Chilton’s spot.

Still, a Wall Street résumé does not necessarily translate into deregulation. By most measures, Mr. Gensler would have been an unlikely reformer.

A native of working-class Baltimore, where his father was a cigarette and pinball machine vendor to local bars, Mr. Gensler pursued a career on Wall Street after graduating with his bachelor’s and master’s degrees from the Wharton School at the University of Pennsylvania. By 30, he and a colleague were selected as Goldman Sachs partners — the youngest in the firm’s history at the time.

After minting a small fortune as a star deal-maker in New York and Tokyo — he negotiated what was then a record television-rights deal for the National Football League — Mr. Gensler pursued a second act where many Goldmanites before him had gone: the Treasury Department. During his tenure there, Mr. Gensler helped enact legislation exempting from oversight broad swathes of derivatives trading, the same industry that was later at the center of the 2008 crisis.

Against that backdrop, his 2009 nomination to the C.F.T.C. was a tough sell. Two liberal senators placed a hold on the appointment. And in a closed-door meeting with Mr. Gensler, another Democratic senator encapsulated the unease over President Obama’s financial regulatory appointments, opining that “the president ran on change and you guys aren’t change.”

Within weeks of receiving Senate approval, Mr. Gensler largely silenced his liberal critics. He became a regular presence on Capitol Hill that year, lobbying lawmakers to bolster what ultimately became the Dodd-Frank Act, the regulatory overhaul passed in response to the crisis. The day in 2010 that Dodd-Frank became final he stayed past 4 a.m. to put the finishing touches on the law, stopping only to buy dinner at McDonald’s for his staff.

After Dodd-Frank took effect, he helped write dozens of new rules to reshape the derivatives industry. Dodd-Frank stretched his agency’s reach from the roughly $35 trillion futures business to the opaque $400 trillion swaps market.

He also selected David Meister, a former federal prosecutor, as his enforcement chief. Mr. Meister went on to file a record number of cases against some of Wall Street’s biggest banks. An investigation into the banking industry’s manipulation of benchmark interest rates, an examination that ensnared UBS and Barclays, extracted hundreds of millions of dollars in fines and underpinned Mr. Gensler’s calls to overhaul the rate-setting process.

“His aggressiveness was exactly what was necessary,” said Mary L. Schapiro, who was the chairwoman of the Securities and Exchange Commission for much of Mr. Gensler’s tenure.

The push by Mr. Gensler clashed with the staid culture of an agency once known as the “watchdog that didn’t bark.” A nine-time marathon runner who climbed Mount Rainier during his C.F.T.C. tenure, Mr. Gensler routinely demanded that staff work weekends and holidays.

After a fall in which he broke four ribs and punctured a lung, colleagues say, Mr. Gensler worked from his hospital bed. Then, five days after Mr. Gensler’s injury, his father died. But he soon returned to work, taking the stairs to his ninth-floor office.

As chairman, he was something of a micromanager, tweaking even obscure agency documents known as “no action” letters. “Gary is not a micromanager,” Mr. Meister said in jest at the farewell event last month. “He only called me on nights, weekends and holidays.”

Colleagues also recall seeing a personal side of Mr. Gensler. He recently held a holiday party for 45 agency colleagues and their spouses and attended a former staff member’s wedding. At an office Christmas party in 2012, he joined a rendition of a line dance known as the Wobble.

But his tenure also saw rare breakdowns in decorum. The tensions culminated last year when Mr. Gensler refused to budge on a July deadline to produce plans for stretching Dodd-Frank rules to trading overseas, a position that upset regulators in Washington and abroad.

At the time, a Republican commissioner at the C.F.T.C., Jill E. Sommers, declared that “no one has ever accused Gary Gensler of being reasonable.” Mr. Wetjen, who worried that the agency was acting hastily and could have unnecessarily disrupted markets, once became so frustrated with Mr. Gensler that he blurted to colleagues that they should tell Mr. Gensler where to go, using an expletive. (Mr. Wetjen, who has since called Mr. Gensler “a friend” and was the master of ceremonies at his farewell event, said that he did not recall saying that.)

But ultimately, on that plan and others, the agency formed a consensus. About 70 percent of the agency’s final rules and orders under Dodd-Frank received unanimous approval from the five-member commission.

To appease fellow commissioners, for example, Mr. Gensler softened a rule intended to encourage competition among banks in the swaps market. Rather than force asset managers like Vanguard to contact at least five banks when seeking a price for a swaps contract — as the agency initially proposed to do — he agreed to temporarily lower the standard to two banks before moving up to three.

“At the end of the day, he was a deal-maker,” Ms. Schapiro said. “Of course, it was really at the end of the day.”

Wall Street objected all the same. When a dozen lawyers and lobbyists arrived in his office last summer to press their case about the cross-border plan, Mr. Gensler, his loafers removed and his tie falling inches below his belt, flashed a smile. “Guys, I was one of you,” he remarked. “I know how the game is played.”

Last month, some of the same groups sued the agency. It was the fifth lawsuit since Mr. Gensler took over.

Mr. Gensler’s next step is unclear. In an interview, he said he planned to return to being a stay-at-home dad for the youngest of his three daughters. His wife, an artist, died of breast cancer in 2006.

“It’s been a tremendous honor to serve at this time,” he said. “I assume my professional life will sort itself out.”

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