Bankers Seek Clues to Biden's Regulatory Reform Plans 

November, 2020 - Kevin Tran

Last week, Waller kicked off its multi-part series examining the near- and medium-term impact of President-elect Biden on the financial services industry with Part I of a discussion analyzing the likely direction of financial services regulatory reform under the Biden administration. Part II continues the discussion and incorporates emerging information regarding Biden’s financial regulatory platform.

Of significant importance is the makeup of Biden’s transition team in charge of reviewing regulatory activity at the federal banking agencies (e.g., the Fed, the OCC and the FDIC) and at the CFPB. For these particular agency review teams, Biden tapped a number of fierce proponents of financial regulation who played significant roles in the past advocating for stronger oversight of Wall Street and stricter consumer protection regulations.

Although it is difficult to estimate the extent to which these agency review teams will impact Biden’s ultimate policy direction, the selection of many financial regulation and consumer protection allies likely portends a reversal of financial regulatory rollbacks that occurred under President Trump. Additionally, these reversals likely will occur in conjunction with stronger consumer protection laws and more aggressive supervision and enforcement regimes. To that end, the analysis below concludes Waller’s two-part examination of Biden’s likely financial regulatory priorities in the near- and medium-term.

Secretary of Treasury

Much of Biden’s economic policy will be implemented by his selection of the Secretary of the Treasury. The concern among banks, however, is how far left will the new secretary take the Treasury Department.

Lael Brainard, former undersecretary of international affairs at the Treasury Department ad current Federal Reserve Board Governor, appears to be the leading contender for Biden’s Treasury Secretary. During the Obama administration, Governor Brainard served as the Treasury Department’s chief diplomat leading the administration’s global economic and financial policy. At the Fed, Governor Brainard has consistently opposed loosening regulations on the banking system put in place by the Dodd-Frank Act. She cast the lone dissenting vote when the Fed approved the “tailoring” of post-crisis financial regulations for all but the largest banks. However, progressive Democrats criticize her as being too much of a centrist, with some still faulting her for appearing easy on China during her time at the Treasury. Regardless, her strength as a negotiator, particularly in the face of a likely Republican-led Senate, may lead her not only to being Biden’s preferred choice but also the banking industry’s preferred choice.

Of greater concern to the banking industry is the possibility of a progressive Democrat taking the reins at the Treasury Department. In particular, a progressive such as Senator Warren becoming Treasury Secretary would likely be met by significant pushback from the banking industry. The banking industry fears that a progressive-led Treasury Department would spearhead harsher regulations on the financial sector and lead to more onerous supervision and enforcement regimes.

Ultimately, the battle for Treasury Secretary reflects an ideological fight between the Democratic party’s progressive and centrist wings that will determine the direction of the Treasury as it works to right the U.S. economy amidst an ongoing pandemic. For bankers, specifically, the consequences of this battle will determine the degree to which harsher rules will be imposed on the industry.

 

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