Election 2020: The stakes for financial services

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Perspectives on three potential outcomes of the 2020 election

At this point in the 2020 Presidential cycle, three possibilities remain: (1) President Trump is re-elected, (2) Vice President Joe Biden wins and the now highly unlikely scenario that (3) Senator Bernie Sanders wins. Each scenario seems like it would have serious consequences for financial services, but in our view, the impact of any change in the executive branch would be limited by the regulatory agencies and Congress, both of which were enabling factors for President Trump’s deregulatory agenda.

The agencies have the primary power of implementing regulations and adjusting priorities for supervision and enforcement, which we have seen play out with the numerous changes they have made over the last three years. This was largely due to the fact that, as we discussed in our review of President Trump’s 2016 victory,1 he had an unusually high number of vacancies to fill at the regulatory agencies within his first year in office. As a result, a potential Democratic Administration may not be able to put a majority of their own agency leaders in place until at least 2022. 

President Trump was aided in his deregulatory agenda by bipartisan regulatory relief legislation passed in May 2018 that set the foundation for the agencies to tailor regulation for banks with between $100 and $700 billion.2 After this legislation was signed into law, however, there has not been much bipartisan agreement in the now-split Congress. Control of Congress is also on the ballot this fall and could have substantial impact not only on what can change legislatively but on who can be appointed to the regulatory agencies. Congress is likely to remain split, so our refrain since the 2016 election will likely remain true: the most impact on financial services is and will continue to be felt from the referees (i.e., regulators) at the regulatory agencies rather than rules (i.e., laws) passed by Congress. 

In order to fully evaluate the impact of the 2020 election, it is also necessary to consider the current state of financial regulation. The deregulatory changes over the last three years have acknowledged the industry’s view that the pendulum had swung too far after the crisis and that there was room to streamline and right-size certain requirements without risking safety and soundness. Going forward, we expect that even the most vocal bank critics would likely face strong headwinds against unwinding these reforms and instituting significant new capital or liquidity requirements absent another crisis. This does not mean that requirements will continue to be eased at the same pace over that time, nor does it mean that the global systemically important banks (GSIBs) will share in the 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. 

With this current state in mind, after outlining the potential and limitations for both the agencies and Congress, we will discuss what we expect from the three potential outcomes of the 2020 Presidential election.

Two avenues for action: Agencies versus Congress


Most of the regulatory rollback under President Trump’s watch has been accomplished through the regulatory agencies, which he was able to take control of early in his Administration. In addition to tailoring requirements including stress testing and resolution planning for the majority of banks, the agencies have also revised the Volcker Rule3 and de-designated all remaining nonbanks previously deemed systemically important.

Perhaps most importantly for any discussion of the impact of the 2020 election on financial services, any potential Democratic President will not be able to install their own picks for a number of the agencies until at least 2022. President Trump’s stroke of good fortune on the timing of openings, combined with the time it took to get his agency heads confirmed, means that, absent any resignations, the FDIC Chairmanship will not be vacant until June 2023, the OCC Comptroller will be in place until November 2022 and the CFPB Director will remain until December 2023. 

In addition, President Trump has already been able to fill four of seven Fed Board seats and has two more nominees awaiting confirmation. Although they do not generally serve out their full terms, the potential term for a Fed Governor is 14 years, and even the four-year terms of the Chair and Vice Chair of Supervision – the key overseer of regulatory policy – run until at least the fall of 2021. Fed rulemaking is also subject to a vote by the entire Board, so even if a Democratic President is able to get their choices for Chair and Vice Chair for Supervision confirmed, it is possible that they may not have the votes to make significant policy changes. 

The Treasury Secretary as well as the heads of the SEC and CFTC typically step down if their party loses the Presidency, but any new appointees would be subject to confirmation by the Senate (as discussed further below). A new Treasury Secretary would have some ability to coordinate regulatory policy through regular meetings of the Financial Stability Oversight Council (FSOC), a regulatory coordination body created by Dodd-Frank. However, any concrete changes to FSOC policy, such as the designation of nonbanks as systemically important, would have to likely have to wait until at least 2023 when a majority of the terms of the current FSOC representatives will have ended. See the Appendix further below for a full chart of agency terms.

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Although the agencies have the most direct impact on the industry, Congress – namely the Senate – has an important role in determining who will lead those agencies. Senior positions in each of the agencies are subject to Senate confirmation with 51 votes, and if the President wins reelection and Republicans retain control of the Senate, this will not present as much of a hindrance. However, if Democrats win the Presidency but not the Senate, this scenario would likely result in a more moderate slate of Democratic appointees who are acceptable to both Senate Republicans and the financial services industry, though deals to confirm more controversial nominees and extended terms by acting leaders are certainly possible. It is also worth noting that the recent example of Acting Comptroller of the Currency Keith Noreika demonstrated a possibility for the Comptroller role to be at least temporarily filled by an appointee who was not confirmed by the Senate. 

In the 2018 midterms,4 Republicans expanded their Senate majority to 53 seats while Democrats won the House. This year, all of the House seats and 35 Senate seats will be on the ballot. Although Republicans will need to defend 23 of those Senate seats, Democrats will face an uphill battle to win the chamber as they would have to defend two seats in states that voted for President Trump in 20165 and flip at least three or four others to have a chance at the majority. Of the 23 seats currently held by a Republican, Democrats are primarily targeting three states that already have one Democratic Senator - leaving a low margin for error.6 Given the timing of many of the agency leadership terms, the potential for nominations to make it through the Senate may hinge more on the 2022 midterm election, for which it is too early to make any predictions because much will depend on the results of the 2020 election – as the President’s party historically loses seats in midterms – and the state of the economy.

A number of election models expect Democrats to retain the House, but if there is anything the last several elections have taught us, it is that advance certainty about any sort of result is impossible. The 2018 midterms, when Democrats took the House majority, had the highest turnout of any midterm election in the last 40 years, but Presidential election years always get much more attention. This increase in turnout could upend or strengthen predictions about the House and Senate, as could the Presidential election at the top of the ballot. 

The results of this year’s Congressional elections will also inform the prospects of any legislative efforts. The regulatory relief law was passed in May 2018 when Republicans controlled both chambers and there was support from a number of Democratic Senators who lost their seats that November.7 The House has passed a number of financial services bills in the time since, but none have been able to get through the Senate. If Congress remains split, legislative compromise will be challenging regardless of who is elected President. There is a chance, however, that certain policy changes could be attached to must-pass appropriations bills.

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2020 election scenarios

With the limitations for both the agencies and Congress in mind, we evaluate what can change under the three potential outcomes of the 2020 Presidential election: (1) President Trump is re-elected, (2) Vice President Joe Biden wins and the now highly unlikely scenario that (3) Senator Bernie Sanders wins.

President Trump is re-elected

If President Trump is re-elected, we do not expect any major changes to or divergence from his current financial services policies. Many of the completed and ongoing reforms were outlined in a series of reports published by the Treasury Department,8 and it is likely that these reports would continue to serve as a roadmap for a second Trump term, but there is also a degree of uncertainty about who would drive the reforms as the lead author of the Treasury reports has since left the Administration.

As discussed above, many of President Trump’s appointees have the ability to stay in their positions well into his potential second term. Unlike those in a number of other sectors, most of the financial services appointees have not faced significant controversy and could be re-nominated for a second term - some could possibly even be re-confirmed by the Senate even if Republicans do not retain the majority. One notable exception is Fed Chair Jerome Powell, with whom Trump has had public disagreements regarding monetary policy. His term as Chair expires in February 2022 and based on current rhetoric, it appears unlikely he will be reappointed. Because he would not be likely to stay on as a Governor, President Trump could then either appoint an entirely new Chair or choose from among his current Governors. Above all, he will look for agreement on his interest rate philosophy for any Fed appointments and it is unlikely that any candidate would have dramatically different views on regulation. Given concerns expressed by Senate Republicans about President Trump’s less traditional Fed nominees, we do not expect that the president could get someone nominated and confirmed to the Chairmanship who is significantly outside the mainstream of monetary economics.

If we assume that most of President Trump’s appointees remain in their positions or have successors with similar philosophies, we can expect that they will continue to turn the tide of financial regulation away from rising requirements and toward relief. In particular, Fed Vice Chair for Supervision Randal Quarles’s recent speech provides insight into what the future of supervision under the current Administration might look like.9 If they are not completed this year, other key reform targets for a second Trump term would be the Community Reinvestment Act (CRA), housing finance reform, and changes to anti-money laundering (AML) requirements.

Under this scenario – or any that has the federal agencies maintain their current direction – state regulators would likely continue to step up regulation and enforcement in areas that are either not progressing in Congress or have been rolled back at the expense of consumer protection. Over the past several years, the New York Department of Financial Services (NYDFS) has issued the first proscriptive US cybersecurity regulation, levied record-breaking fines for sanctions violations and built a deep bench of former federal prosecutors to lead its various enforcement divisions. California has also been pursuing consumer protection measures by passing a data privacy law and proposing the establishment of a state consumer protection agency intended to fill the void by the weakened CFPB under the current Administration. In addition, a broad coalition of states – led by both Democratic and Republican Governors – has announced that it is conducting an investigation into predatory online lending. We would expect a number of states to draw an even sharper contrast to Federal policy, particularly with respect to consumer protection and climate change
risk on financial services.

Vice President Biden wins

Vice President Joe Biden is now the only moderate candidate remaining in the Democratic primary and he does not have any specific financial services policies on his platform. Although Mayor Mike Bloomberg has now dropped out of the race, it is noteworthy that his detailed financial services policy document was more progressive than the policies President Obama ran on during his campaigns – a sign of how the party as a whole has shifted and how even candidates considered to have moderate views on financial services may be expected by voters to take a hard-line position on Wall Street.10

Regardless, we expect that Vice President Biden, even when he has control of more agencies, would still be unlikely to fully undo many of the Trump Administration’s reforms unless there are unexpected weaknesses in the financial sector that highlight a need to do so. In the absence of obvious regulatory failures, many of the reforms would likely be accepted as the new normal, particularly the relief for smaller banks. If the Community Reinvestment Act (CRA) reform proposal from the OCC and FDIC is not finalized by the current leadership, however, we would expect Democratic appointees to these agencies to take a position more in line with approaches favored by community advocacy groups.11 

In addition, Biden would be likely to prioritize strengthening consumer protections, for example by addressing predatory lending and data privacy. However, it is uncertain as to when these initiatives would be prioritized as they would typically be addressed by the CFPB. Although ongoing litigation may result in the ability of the President to remove CFPB Director Kathy Kraninger for cause,12 we would expect Biden to be less likely to expend political capital to do so barring any conspicuous mismanagement or wrongdoing. Regardless, a Biden Administration could have trouble getting an appointee that promises to return the CFPB to a more aggressive posture through a Republican Senate. As a result, any significant action on consumer protection would likely have to wait until late in a Biden Administration although some movement on cybersecurity and data privacy could be possible through other agencies if there are more high-profile data breaches.

Biden would however be able to promptly nominate a new Treasury Secretary and likely new Chairmen of the SEC and CFTC – if tradition holds and they step down when a new President is elected. If he is able to get choices for the Chairmen through the Senate, he could have a Democratic majority on both Commissions due to the rule prohibiting more than three members of one party. We would not expect the Commissions to fully reverse the rules finalized under the current Administration but to potentially propose amendments in line with dissents from current Democratic Commissioners.13 In addition, we would expect a Democratic majority on the SEC to increase focus on diversity and climate change risk disclosures. The Department of Labor’s (DOL’s) fiduciary rule is another option for more immediate impact as any Democratic President would be able to appoint a new Labor Secretary early on.14

Senator Sanders wins

The lone progressive remaining in the Democratic primary, Senator Bernie Sanders, now has a very long shot at winning the nomination but his potential actions as President are worth assessing for thoroughness due to his bolder positions on financial services and the potential influence of his supporters on the Democratic party platform. 

“Taking on Wall Street” and breaking up the big banks have been common refrains of Senator Sanders’ campaigns. In terms of specifics, he has advocated for capping interest rates for consumer loans and credit cards at 15%, allowing post offices to provide basic banking services, fighting discrimination in banking, reforming the credit rating agencies, and instituting a financial transactions tax. Aside from some limited post office banking allowances, any significant progress on his other policy priorities would likely require Congressional action. 

More so than Biden, we would expect Senator Sanders to push the limits of what he can do via Executive Orders (EOs) and the bully pulpit of the Presidency. President Trump provided an example for doing so by kicking off his deregulatory agenda with a series of EOs directing the Treasury Department to provide recommendations for regulatory changes. It is unclear whether a President Sanders could take more direct action on financial regulation via EO, but potential actions include directing the post office to begin providing certain financial services. Any Democratic President – progressive or moderate – would also have to keep in mind that any unilateral executive actions could face legal challenges to be decided by a Federal judiciary that has been largely transformed by the Trump presidency. Republican-appointed judges currently hold 95 out of 179 circuit court seats as compared with 73 seats in 2016 ‒ and more seats will undoubtedly open over the remainder of his current term. This increasingly conservative judiciary has already made its presence felt by, for example, challenging FSOC’s designation process and overturning the DOL fiduciary rule.

The industry likely breathed a sigh of relief when Senator Warren, the other prominent progressive candidate for the Democratic nomination, left the race. She has a long history and interest in financial regulation, has been on the Senate Banking Committee (SBC) since 2013 and has had contentious interactions with a number of financial regulators from both the Obama and Trump Administrations, including blocking appointees of her own party whom she believed were too close to Wall Street. As a result, it is worth noting that she would still likely have influence on a new Democratic Administration. She will still be a Senator on the SBC and a strong voice on financial services policy, and could even be considered for a position in that Administration although her appointment to a cabinet position or an agency would likely face industry opposition and a difficult path to confirmation through a Republican Senate.

Full chart of agency terms

1. For more, see PwC’s First takes: Ten key points from Donald Trump’s electoral victory (November 2016) and Ten key points from Trump's first year (January 2018).
2. For more, see PwC’s First take, Key points from the Fed’s bank regulation tailoring proposal (November 2018).
3. For more, see PwC’s First take, Seven key points from the proposal to reform the Volcker rule (June 2018).
4. There are a number of nuanced differences between the Democratic candidates. For the purposes of this analysis, we categorized Democratic candidates former Vice President Joe Biden and former New York City Mayor Mike Bloomberg as moderate and Senators Bernie Sanders (D-VT) and Elizabeth Warren (D-MA) as progressive.
5. The individuals in these positions could choose to leave them early, but these are the end dates for their appointed terms.
6. For more, see PwC’s First take, Five key points from the 2018 midterm elections (November 2018).
7. Democratic Senators are up for reelection in Alabama and Michigan, both states that voted for President Trump in 2016.
8. The states with a Republican Senator up for re-election that already have one Democratic Senator are Maine, Arizona and Colorado.
9. For more, see PwC’s First take, Five key points from the financial regulation relief law (May 2018).
10. For more, see PwC’s First takes, Ten key points from Treasury’s first financial regulation report (June 2017), Five key points from Treasury’s second financial regulation report (October 2017), Ten key points from Treasury’s third financial regulation report (November 2017), and Five key points from Treasury’s fourth financial regulation report (August 2018).
11. For more, see PwC’s Key points from Quarles’s speech on the future of Fed supervision (January 2020)
12. For more, see Mike Bloomberg's Financial Reform Policy
13. Specifically, SEC Democratic commissioners have argued that the agency’s “best interest rule,” Volcker reforms and efforts to expand access to capital markets have been too lenient and that the proposed consolidated audit trail has faced undue delays. CFTC dissents have echoed concerns about the Volcker reforms and argued that cross-border equivalence would expose US investors to risks.
14. Community groups have suggested that the OCC and FDIC CRA reform proposal’s evaluation of the total dollar amount of lending could encourage lenders to meet obligations through financing a few large projects in lower-income areas instead of catering to the needs of the people who live in those areas and have disagreed with the removal of the retail lending and services component of the CRA rating.

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Julien Courbe

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