What does a Biden presidency mean for US banking regulation?
24 November 2020
Joe Biden has been declared President-elect of the United States, making him the 46th ‘Leader of the Free World’ but how will this new administration impact Wall Street, and what will happen to the US banking regulation rollbacks put in place by Trump’s Republican Party?
We may not truly find out what to expect for some time yet. Mr Biden has inherited a country in crisis on a multitude of levels – with the coronavirus pandemic being top of the heap. Other areas that will need immediate attention include the recession, problems with the healthcare system, social unrest in many parts of the States, as well as increasing pressure from climate change experts to overturn regressive, Trump-era environmental policies.
In addition, much of Biden’s ability to set the regulatory agenda is dependent on who has control of the Senate, which is still unclear as of now. The traditionally Republican State of Georgia will have the deciding vote on who has control of the chamber, in an election that will take place in January. If Congress remains divided, Biden’s administration will encounter many obstacles in achieving their manifesto goals, which at any rate barely mentioned financial regulation at all.
What to expect
What we can assume is that, like his former boss Barack Obama, Joe Biden will be an advocate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as be in favour of bolstering the remit of the Consumer Financial Protection Bureau (CFPB). This indicates a tougher stance on the country’s largest banks, as well as a commitment to stronger consumer protection. The CFPB collected $12 billion in fines from the likes of Wells Fargo & Co., JPMorgan Chase & Co., Discover, and Bank of America Corp under Democratically-appointed Director, Richard Cordray. During most of Trump’s tenure, however, the CFPB has been extremely inactive, tending to focus more on small-time “scammers” than systemic problems at large financial institutions. Biden will want to ensure that his appointment for new Director shares his pro-consumer vision. The Financial Times reports that the most likely candidate to take over is California representative Katie Porter, a lawyer specialising in financial regulation.
More progressive members of the Democratic Party are calling for even stronger US bank regulations than those even before Trump. Justin Slaughter, a Democratic member of the Illinois House of Representatives, was an adviser to the commissioner of the Commodity Futures Trading Commission (CFTC) under Obama. He believes that many members of his party expect Biden to take a hard line against Wall Street.
“The general consensus in the Democratic Party now is that they were insufficiently tough on Wall Street [under Obama]. Even many of the people who were senior persons in that team, I think, would agree with that now.
“We’re not simply going to see a rolling back of the Trump rules, I think we are also likely to see regulation that is tougher than it was in, say, 2015 to 2016.”
When will change happen?
“You really won’t see the shape of a new US financial regulatory framework until the end of 2021.”
Karen Petrou, Federal Financial Analytics
If one thing is clear, it is that change will come. The question of when, however, is as cloudy as ever. The new President will need to put US bank regulations on the back burner so that he can focus on fighting the coronavirus and helping people struggling financially due to the recession. Karen Petrou, the managing partner at Federal Financial Analytics, believes that there could be a bit of a wait, saying that we “really won’t see the shape of a new US financial regulatory framework until the end of 2021”.
Additionally, Biden will have to wait until new appointment dates come around for the major regulatory positions that he would like to fill with Democrats. The top jobs for the likes of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve will not be available for quite some time. And any proposed rule changes the new regulators make will need to be properly reviewed, refined, and approved. As mentioned earlier, these appointments will take even longer if Republicans keep hold of the Senate and decide to try and obstruct them.
Keep ears to the ground
It is difficult to say with certainty what President Biden will look to achieve on financial regulation during his time in office. As of yet, nothing concrete has been published to suggest that major reform is on the horizon. However, it is fair to assume that he will make life more difficult for the country’s largest banks, imposing tougher regulatory rules and levying higher taxes from Wall Street. Given Biden’s promise to tackle climate change during his presidency, some of his supporters have called for new financial regulation to help achieve this. Suggestions include appointing environmentally minded people to regulatory positions, greater risk management and disclosure requirements at central banks, and climate ‘stress tests’. The Federal Reserve has also announced that it will join the Network for Greening the Financial System, a group of central banks working to address the risk global warming poses to their economies.
Banks need to ensure they are well prepared for any changes that may be incoming. As regulatory obligations are expected to evolve, it is important that organisations are prepared to be proactive to the changes and react swiftly when the need arises. Robust software solutions for audit, risk and compliance will play a major role in protecting financial businesses, easing the stress of regulatory compliance, and reducing regulatory costs and overheads.