After a long election cycle including two runoff Senate races in Georgia, President Joe Biden is expected to take office on January 20 with a Democratic Senate majority. Democrats’ victories in both Georgia races will result in a 50-50 tie in the Senate with Vice President Kamala Harris able to serve as a tie-breaker, creating a de facto 51-50 Senate majority for at least two years.
Although it appeared fairly likely that the Biden administration would be checked by a Republican Senate, the dual victories in Georgia allow Democrats to expand the universe of what may be possible to achieve legislatively. Perhaps most notably, the Senate majority will allow President Biden to confirm nominees without support from Republican senators, which only requires a simple majority. While some legislative priorities may also pass with a simple majority, Democrats will be unable to lose a single vote for such legislation and many significant priorities can be blocked by Republicans through the 60 votes necessary to overcome a filibuster.
As a result, our mantra remains true that the greatest opportunity for change will still come from changing the referees (i.e., regulators) rather than changing the rules (i.e., legislation). President Biden has already selected former Federal Reserve (Fed) Chair Janet Yellen as Treasury Secretary and will be able to select leaders of the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Office of the Comptroller of the Currency (OCC) and Consumer Financial Protection Bureau (CFPB) in short order. See Appendix A for a full timeline of agency leadership terms.
With the picture of government control and nominations becoming clearer, we can explore questions of what policies President Biden will try to enact and how the next four years will be different from the last. The nature of the economic recovery will likely be a key factor in determining the direction of the Biden administration’s financial services policy. If financial institutions continue to maintain their capital levels and support hard-hit customers, even the most vocal bank critics would likely face strong headwinds against unwinding reforms and instituting significant new capital or liquidity requirements. This does not mean that Dodd-Frank requirements will continue to be eased, nor does it mean that the largest banks will get any significant relief. They are continuing to get larger and thus far the regulators have continued to hold them to the highest standards through the behind-the-scenes supervisory process.
Cutting through the noise about what is possible, we anticipate that the Biden administration will focus on incrementally strengthening consumer protection as well as environmental, social and governance (ESG) standards. We do not expect that financial services will be a leading priority as voters are much more preoccupied with issues such as the federal government’s pandemic response, healthcare, racial injustice, and the environment. Moreover, even when political chatter has turned to the need for more regulation, financial services has found itself replaced in the crosshairs by big tech. We expect this change in focus to continue, but financial institutions can find themselves back in the hot seat with high profile customer abuses or data breaches.
Given this backdrop, we will be looking out for the following ten points throughout the next four years: