Our Take: financial services regulatory update – November 08, 2024

• Three days after former President Donald Trump won the 2024 Presidential election, here’s what we know:
  • Republicans will take back control of the Senate after flipping seats in West Virginia, Ohio and Pennsylvania. As a result, Senator Tim Scott (R-SC) is positioned to become the Chairman of the Senate Banking Committee.
  • Control of the House of Representatives has not been determined but Republicans will take the majority if current counts hold in remaining districts.

• What’s next? Following the election, financial sector stocks sharply increased based on an expectation for the new government to streamline regulatory requirements, reverse some Biden Administration rulemaking, and create a friendlier environment for the development of innovative products and services. As remaining votes are counted and the dust settles, President-elect Trump will begin announcing his planned nominations, including for Treasury Secretary and leaders of key financial services regulatory agencies who will chart this new direction.

Our Take

Personnel is policy. Trump will be able to initiate the most immediate changes through Executive Orders and nominations to the financial services agencies starting with the Treasury Department, CFPB, OCC, SEC, CFTC and possibly FDIC. Although the campaign once again struck a populist tone at times, with Vice President-elect JD Vance saying “we’re done…catering to Wall Street,” we expect the Trump Administration financial services nominees to carry on a traditional Republican agenda to reduce “excess” regulation on financial institutions and spur economic growth. The first Trump Administration was marked by an increase in the threshold for most regulatory requirements instituted after the 2008 financial crisis, some of which have been partially reversed under the Biden Administration in response to the 2023 bank failures. In line with dissents from current Republican members of the Fed and FDIC, Trump-appointed leaders will likely swing the pendulum back towards higher thresholds for more stringent requirements and relief for smaller banks. New agency leaders will also be able to modify or table rulemaking that has not been finalized before they take over, such as Basel III endgame, which had a planned re-proposal that has not yet been issued and will likely go back to the drawing board for further relief. Any new rulemaking will likely aim to 1) further tailor existing requirements; 2) amend rules promulgated by the Biden Administration; and 3) implement more transparent policies around innovative products such as digital assets.

New agency leadership will also be able to alter the landscape through changes to supervisory priorities and enforcement policies. In terms of priorities, we are likely to see a shift away from the Biden Administration’s attention to climate risk management and the CFPB’s aggressive consumer protection stance. That said, the financial services agencies will still fulfill their statutory obligations to protect consumers and investors, maintain the safety and soundness of the financial system, and hold financial institutions accountable for regulatory noncompliance and risk management deficiencies through the examination process. However, the industry will find new agency leaders more willing to make adjustments in response to complaints around opaque expectations and policymaking through enforcement by making exams and supervisory actions more transparent, clearly tied to rule violations, and focused on substantive weaknesses.

Congress and the judiciary will bolster the Trump agenda. While the most immediate and impactful changes will be instituted through the federal agencies, their actions will be supported by a Republican majority in the Senate and potentially the House as well as a judiciary largely transformed by the last Trump Administration. The industry has already successfully challenged several rulemaking efforts in court and this trend will be strengthened following the Supreme Court’s June vote to overturn “Chevron deference” to administrative agencies’ interpretations of statutes. Going forward, agencies will have to more carefully craft and limit rulemaking to statutory authorities to survive legal challenges - even under future Democratic administrations. On Capitol Hill, a Republican-majority Senate should give Trump a relatively straightforward path to confirmation for his nominees. In addition, a possible Republican majority in both chambers could result in votes to overturn regulations finalized after August 1st via the Congressional Review Act as well as potential advancement of initiatives championed by Senator Scott, including increasing opportunities to access capital markets for small business and individual investors.

Stay tuned for more detailed coverage of the election impact next week and on an ongoing basis as we cover key developments around the incoming Administration.