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.
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.