The volume of news, speculation and conjecture about the presidential transition rivals the flow of Niagara Falls. But as far as experts in financial services’ status in Washington are concerned, the biggest initial shift will be a major … pause.
Prudential banking regulators already put it on the record during a post-election hearing of the House Financial Services Committee hearing that they would not be pushing anything new through before the second Trump administration takes office. But experts expect the pause to last beyond that.
There’s a good deal of change that banks, credit unions and fintech companies expect to see in at least two years of a Republican White House and a Republican Congress that just isn’t going to happen very quickly, in spite of all the noise from Washington and Florida and the anticipation of the industry.
Further, expectations may not take a straight line from point A to point B. Lurking in the background is the incoming Trump administration’s populist streak. This may produce regulatory and legislative twists that rival some of the nominations made to major federal posts for unexpectedness — and even audacity.
There’s also a degree of intrigue worthy of an old-fashioned political novel. The announced nominee for Treasury Secretary, Scott Bessent, was quoted by Barron’s regarding the continuing role of Jerome Powell as Federal Reserve Board chairman. Bessent said that Powell could be left in to finish his term — he’s already established that he will put up a fight against removal — but that a “shadow chairman” pick, announced, would render Powell’s role increasingly moot.
The Financial Brand tapped several experts in Washington affairs for an early look at what’s coming. Generally, they admitted that what they had to say was educated guesswork. And a source or two spoke on condition of not being identified or explicitly quoted, out of concern that there’s more divination right now than clarity.
Happy Days Are … Not Quite Here
Many bankers expect that regulation is going to slow down after going into overdrive during the Biden years. They hope that there may be some cranking back on what’s been put in place during the Biden administration, especially from the CFPB.
But James Ballentine of Ballentine Strategies has been on Capitol Hill for 25 years, as both a staffer and later for years at the American Bankers Association, where he rose to head of congressional relations and political affairs. He suggests some tempering of hopes for rollbacks and relief.
“It’s a fair bet, but I would not encourage anyone to push all of their chips to the middle of the table on that bet,” says Ballentine. “Regulations take time to get going, take time to implement. But they also take time to roll off. It’s not just a stroke of a pen that stops regulations already in place to make them simply go away.”
Ballentine says it’s likely, going by the first Trump presidency and past Republican White Houses, that there will be some easing off the regulatory gas pedal.
“But we’re never going to see regulation again?” says Ballentine. “I don’t foresee that either.”
One source suggests that what will change is the layering of regulations that financial players have seen in recent years. There’s even hope that heavy-handed examinations, from the industry’s point of view, may be eased.
Read more: Is the Future of Payments Public or Private? The Fed’s Waller Weighs In
Banking Legislation Under a Red Dome
Capitol Hill, with Republican majorities in both houses in the 119th Congress, looks like a golden opportunity for elements of the financial services business. But Ballentine says things aren’t that simple.
First, he explains, in recent years the banking committees haven’t produced much legislation that ever passed, let alone became law. A good deal of their action, he continues, has been leveraging the bully pulpit of serving on those committees to lean on regulators, from one direction or the other.
Ballentine’s point is well taken. Looking back, consider the last big existential threat on the banking front: the industry troubles of the first quarter of 2023, culminating in the failure and purchase of Signature Bank and Silicon Valley Bank, as well as the sale of First Republic Bank to JPMorgan Chase. The matter generated bad publicity for regional banks, hearings and posturing on the Hill, some red faces among regulators, and, ultimately, no legislation.
“And I don’t see this likely to be picked up in a GOP-controlled Congress,” says Michele Alt, partner at Klaros Group and a 22-year veteran of the Comptroller of the Currency’s legal wing. She adds that political memories are short.
Banking legislation that became law used to wind up as a bipartisan effort, but Ballentine says this hasn’t been for some years. “It really takes a lot to get something through the Senate Banking Committee,” says Ballentine.
At this point much of the congressional lineup for next year is still forming. With the chairman of House Financial Services leaving Congress, two front runners for the post are French Hill of Arkansas, the current vice-chairman, and Andy Barr of Kentucky, who is seen as having an edge because of connections to President-Elect Trump. The agenda for the committee will hang on the winner.
On the Senate side, Tim Scott of South Carolina, already the current ranking minority member of Senate Banking, is expected to be chairman when the Republicans become the new Senate’s majority party. But Ballentine notes that Scott hasn’t released an agenda to date. Some of Scott’s key issues, such as housing affordability rarely result in legislation, he adds.
On the other hand, some see a Republican trifecta in Washington as a major chance to do an ambitious rewrite of banking policy and an opportunity for committee chairs to shine. Politicians live to have their names on major laws — Glass-Steagall, Garn-St Germain, Dodd-Frank, etc.
Observers point out that solid action, or, at least, hearings, on issues will likely come on the House side before the Senate.
Early talk of “recess appointments” of cabinet and other key posts usually requiring Senate confirmation seems to have subsided. But the Senate Banking Committee will be faced with a slew of hearings for nominees to the posts of Treasury Secretary, the Comptroller of the Currency, the chairmanship of FDIC and more, with Trumpian urgency behind them.
Another factor will be that many economic issues will come ahead of banking industry matters when the new Congress convenes. Tax reform is expected to occupy a good deal of congressional attention in the first session of the 119th Congress, for example.
Banking on Hopes for Some Rollbacks
Rollback of 2024 regulatory efforts will hinge on a few key factors. One is the likelihood that new Trump financial regulators will want some time to review pending matters and figure out which ones will be tabled, pulled back for study, or pushed forward. On the other hand, there are some regulations already in place that some in the industry would like to see revised or scrapped. One avenue for the latter, besides action by the agency responsible, is the Congressional Review Act, which is subject to certain limits. This enables Congress to set aside a regulation, subject to presidential veto. Use of this option has become more frequent in recent years.
“The thought that whatever happened during the Biden administration would automatically disappear is not realistic,” says Ballentine. “There’s a process that must be worked through. Some things are on the table and some things will be off the table.”
Ballentine thinks the regulatory revision of Community Reinvestment Act rules has been worked out between the agencies and is “absolutely off the table.” Michele Alt sees the CFPB’s “1033” open banking rules, already the target of a lawsuit by the Bank Policy Institute, as a potential reboot, although some think of it as unstoppable.
Read more: Has CFPB Started a War Over Open Banking — or Created New Opportunities for Banks?
What Impact Will Populism Have on the Washington Outlook?
A key ingredient in the Trump-Vance victory was the duo’s appeal to people who felt ignored by the political elite. Having ridden that wave into office, will this color the way legislation and, to a degree, regulation, proceeds?
The answer to that will be forming over coming months, says Penny Lee, CEO of the Financial Technology Association, a fintech trade group. She points out that the populist vice-president elect, J.D. Vance, added to Trump’s appeal and helped produce a mixture of potential policy that may rival oil and water.
“You used to be able to be to think, ‘Here’s the Republican box, and here’s the Democratic box’,” says Lee, a political veteran. “Everybody kind of stayed in their boxes.” Not anymore.
The Trump campaign appealed to many bankers, but there were also populist ideas floated along the way. A key one was the idea of temporary credit card interest rate caps, an idea guaranteed to get attention in a time of record-setting credit card balances and interest rates that can reach high double digits.
There’s skepticism that anything like card rate caps would become law, even though it’s even been a Democratic darling. Ballentine points out that both Vermont’s Bernie Sanders and Massachusetts’ Elizabeth Warren have spoken positively of the cap concept — apropos of Penny Lee’s point about party “boxes.” Ballentine says he’s not sure if Warren’s comments weren’t made ironically to bait Trump, whose victory was the subject of an emotional negative social media message Warren posted.
Adds Ballentine: “Caps make for a great talking point. But further analysis would have to be done in order to determine whether something like this would work — and ultimately, legislating in that direction would be a challenge.”
Read more: Capping Credit Card Rates and Fees Won’t Ease Consumer Debt Crunch
Cryptocurrency Takes an Early Spotlight
Both campaigns had embraced elements of the cryptocurrency industry, with one estimate putting its total presidential political donations at over $200 million. The apparent commitment made to act in the crypto industry’s interest, especially regarding its status in financial services and in the regulatory framework, has been one of the hotter specific issues in transition planning by the Trump team.
“Everyone is looking to put some type of structure and guideline in place regarding what crypto can and cannot do,” says Ballentine. “It’s something both Democrats and Republicans have had an interest in settling. I don’t think it’ll be the first thing off the block, but certainly this Congress could address it.”
There’s already talk about appointing a “crypto-czar” somewhere in the executive branch, and one potential czar whose name has been rumored in Brian Brooks, a former first-term Trump Acting Comptroller of the Currency. Already, Gary Gensler, current chairman of the Securities and Exchange Commission and no fan of crypto, has announced that he will leave at the end of the Biden administration.
There’s a good deal of cynicism regarding this level of early action, basically along the lines action taken in order to fulfill campaign debts. It’s been pointed out that in 2021 Trump said he thought bitcoin was a scam and that he worried that it could weaken the dollar, which at the time he said he wanted to be the strongest currency in the world.
But there’s also recognition that some of the interest appends to the general perception that the Trump administration will be friendlier towards financial innovation than the Biden administration was. There is also a perception that the President-Elect agrees with those that believe holding back U.S. crypto efforts allows other countries to pull into the lead in digital currency.
“In the U.S. we’ve been in a territorial battle, whether digital assets are securities or commodities,” points out Penny Lee, whose group does not include cryptocurrency companies. “There’s renewed understanding that there’s a lot of innovation that is happening outside of our borders.” She points out that Patrick McHenry of North Carolina, outgoing chairman of the House Financial Services Committee, and Maxine Waters, of California, ranking minority member, worked together on a stablecoin bill.
“There was a tremendous amount of right-wing tech influence on this election, and they’re probably going to be interested in regulators who are more receptive to technology and innovation,” says Michele Alt.
Read more: Supreme Court Rulings May Shake Up Banking Entry Decisions in Fintechs’ Favor
Banking Has a Dog in the Crypto Scrum
The banking industry isn’t entirely an outsider looking in on this debate. Some institutions have nibbled at the edges of cryptocurrency and some have gone beyond that. Some banks have gotten involved in stablecoins as they currently exist and some have developed tokens of their own.
So, even if the home for the crypto industry proper is being decided in a political cauldron now, Alt says Trump banking regulators will be determining the other side of that coin — pun intended: “What role does crypto have, if any, in banks?” says Alt.
“There’s effectively been a ban on banks having any involvement in public, non-permissioned blockchains,” says Alt. “The Biden regulators have been saying that issuing or holding crypto assets stored or transferred on an open blockchain network was inconsistent with safe and sound banking practice.” That included the Ethereum and Bitcoin networks, she says.
“I think this is highly likely to change, and the question is how will the Trump regulators change it?” says Alt. Rather than continuing the de facto ban, they might institute special risk-management requirements, she says.
Broad Array of Issues Awaits the Trump Regulators
Banks, credit unions and fintechs will be inexorably wrapped up in the ripples created by Trump economic policies, as they or their customers feel the impact. There is already talk that Trump tariffs on imports from China and other countries could reignite inflation, for example.
Yet there are also issues that could arise as regulators grow into their positions. A handful:
1. Banking as a Service: FTA’s Lee says that much of the bank and fintech activity in this area is paused as regulators work out approaches to put a heavier hand on these arrangements. She says a goal for her group is to pursue greater consistency — the word she uses is “harmonization” — across multiple regulators. She notes that this should interest both banking, as supplier of services to fintechs, and the consumer- or business-facing fintechs themselves, who typically need a bank to make their business work.
2. Chartering progress: Both Alt and Lee point to the trickle of new bank charters issued at the federal level during the Biden administration. Both expect evolution in this area.
Lee says that she expects chartering to open up a bit more and to see fintechs express more interest in obtaining charters and the government more open to granting them, along with deposit insurance, where applicable.
Alt doesn’t expect to see a resurrection of the Obama-era concept of a “fintech charter,” which had a last gasp during the early days of the first Trump administration with a certain air of “not invented here” accompanying its demise. She says the concept never gained any real Washington friends outside of the Comptroller’s Office, which had developed it, done papers and held extensive public hearings. She says then-Comptroller Tim Curry “was ahead of his time on that one.”
But more recently there’s been interest in such creatures as a “payments charter” — backed by outgoing Acting Comptroller Michael Hsu, among others.
“I don’t know that they actually need a special charter,” says Alt, “but if Congress passed the authority, I think we’d see quite a bit of take-up from large nonbanks. They would control the economics and they wouldn’t need a bank partner to get access to the payment rails.”
Meanwhile, Lee indicates that a payments charter is among her group’s goals, as is further passage at the state level of a model money transmission license approach that’s been approved in 14 states thus far.
3. Enforcement actions. The Biden banking regulators, especially CFPB, have been known for heavy duty enforcement, and Alt acknowledges that many expect the Trump regulatory team to ease off somewhat.
Some say this will in part be the result of the departure of agency leaders who have been influenced by Senator Warren, one way or another.
“I think an interesting dynamic is going to play out,” says Alt. “We can expect fewer enforcement actions from the feds. But I think we’ll see some liberal states stepping into that breach.” Keep an eye, Alt advises, on California, Massachusetts and New York.
Editor’s Note: Our pre-election report, “How Are Banking Industry Experts Handicapping the Impact of the Election?,” contains an analysis by Michele Alt of a quartet of recent Supreme Court rulings which will influence rulemaking by banking regulators.