After a long election cycle and a prolonged count in several close states, President-elect Joe Biden is projected to win the White House - pending ongoing legal challenges. This victory for the Democrats is somewhat tempered, however, by losses of a number of toss-up House and Senate seats with control of the Senate coming down to two run-off elections in Georgia that will be held on January 5, 2021. Control of the Senate will be an important factor in what Biden is able to accomplish, both in terms of legislation and the confirmation of cabinet and senior agency nominees. Because Democrats need to win both Georgia seats in order to have a 50-50 tie in the Senate (in which case Vice President-elect Kamala Harris would serve as the tie-breaker), it could be the case that the Biden Administration will be checked by a Republican Senate for at least two years.
While a split Congress would drastically limit the possibility of any transformational financial services legislation, even a narrow 50-50 tie would likely prevent any major changes. As a result, our mantra remains true that the greatest opportunity for change will come from changing the referees (i.e., regulators) rather than changing the rules (i.e., legislation). The Biden Administration will be able to nominate a new Treasury Secretary and likely leaders of the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Consumer Financial Protection Bureau (CFPB) relatively quickly but may not be able to nominate a number of key banking agency leaders until at least 2022. Speculation around Biden’s potential nominees to these agencies has ranged from bank CEOs to regulatory crusaders, but we believe that he will largely stick to moderate, consensus-driven nominees for his cabinet and regulatory agencies - particularly if they are subject to confirmation by a Republican Senate. See Appendix A for a full timeline of agency leadership terms.
With remaining uncertainty around the Senate and regulatory agency nominations notwithstanding, we can still begin to explore questions of what policies President-elect Biden will try to enact and how the next four years will be different from the last. A key factor that will determine the Biden Administration’s direction will likely be the nature of the ongoing economic recovery. If financial institutions continue to show strength and ability to 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 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 be focused on incrementally strengthening consumer protection as well as environmental, social and governance (ESG) standards. It is also important to note that financial services will not be a leading priority as voters are much more preoccupied with the leading issues of the day such as the pandemic response, healthcare, racial injustice, and the environment. 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 any 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:
Purple reign, purple reign.
Dodd-Frank reforms are here to stay.
Tax agenda depends on Senate outcome.
Consumer protection will be a top priority.
Early changes possible at SEC and CFTC.
Change at banking agencies will take time.
Climate change risk on the radar.
Post-pandemic nonbank scrutiny.
Return of a more consensus-seeking approach to sanctions and trade.
Conservative judiciary could put a dent in Biden’s plans.