How Are Banking Industry Experts Handicapping the Impact of the Election?

Whichever party wins the White House, the outcome will be a mixed bag for the banking industry. While a Harris win will likely mean more of the same, Trump will be a wild card. And the calculus also depends on which party wins the House and Senate. Meanwhile key Supreme Court decisions have reformed the regulatory playing field.

By Steve Cocheo, Senior Executive Editor at The Financial Brand

Published on October 23rd, 2024 in Banking Trends

As Election Day approaches, one thing is sure for the banking industry: Either way, a new administration will be taking over the White House. And experts say that even a change of party in the White House will be just one piece of a complicated Washington formula for the industry.

The consensus is that regulatory change for the financial services business will at most be incremental, at least at first, after the election rhetoric is over. However, how regulations develop may evolve considerably in the wake of Supreme Court decisions made in 2024.

Experts also predict that legal challenges by the banking industry to new and existing rules will pick up significantly. Signs of this are already apparent, including such moves as JPMorgan Chase’s saber-rattling over the threat of action by the Consumer Financial Protection Bureau ("The Firm is evaluating next steps, including litigation," it stated in a securities filing); the Financial Technology Association’s new lawsuit against the CFPB’s interpretive rule governing pay-in-four buy now, pay later services; and the lawsuit, also against CFPB, over its final open banking rule. That suit was filed by the Bank Policy Institute and the Kentucky Bankers Association.

The impact of the elections on banking could go beyond regulatory concerns, depending on the economic philosophy that gets its four years at the helm.

And that in turn depends on the balance of power on Capital Hill, especially the possibility that the Senate majority could tip in the favor of the Republicans. Republican control could potentially influence the relative speed and success of regulatory nominations subject to Senate approval, according to Michele Alt, partner at Klaros Group and a 22-year veteran of the Comptroller of the Currency’s legal wing.

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In addition, if the House and Senate turn out to be as closely divided by party as some predict, "then regardless of who is in the White House the achievement of any significant legislation is unlikely," says Alt.

The people at the top of the federal banking regulatory structure will change substantially if former president Donald Trump returns to office, of course. But even changes made to leadership in bank regulatory agencies by Vice President Kamala Harris could influence matters.

The regulator of national banks, the Office of the Comptroller of the Currency, will finish out the Biden administration’s run having never had a Senate-confirmed Comptroller. Acting Comptroller Michael Hsu has run the agency for much of the Biden term, with the administration’s nomination of Cornell law professor Saule Omarova having gone down in flames early on.

Democrat and Republican mascots donkey elephant

FDIC Chairman Martin Gruenberg remains at the deposit insurance agency’s helm, with a commitment to leave, in the wake of a multi-layered scandal, when a replacement is confirmed by the Senate. However, at present, the nomination of Christy Goldsmith Romero, currently a commissioner at the Commodity Futures Trading Commission, has not gone beyond her Senate Banking Committee confirmation hearing back in July. Federal Reserve Board Chairman Jerome Powell’s leadership post expires in 2026 and his board membership in 2028.

The role and future of CFPB Director Rohit Chopra, and his highly political bureau, also bear watching.

And so will the relationship between large banks and the two parties. There’s been evolution in traditional constituencies, points out Keith Noreika, EVP and chairman of the banking supervision and regulation group at Patomak Global Partners. (He served as acting Comptroller of the Currency in 2017, during the Trump administration, between the resignation of Thomas Curry, an Obama appointee, and Joseph Otting, appointed by Trump to the office.)

As the Republican party under Trump has leaned more populist — consider his proposal to cap credit card rates — it pulls away from major financial players. Those players, from Wall Street and among large banks, have been attracted to Harris. Noreika notes that JPMorgan Chase snagged ownership of First Republic Bank in 2023’s banking debacle under the Biden administration.

"So we could be facing a paradigm change" either way the contest goes, says Noreika.

Another potential change: More interest in cryptocurrency from the nation’s "corner office."

Here’s what we heard from veteran banking Washington watchers.

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The Big Picture for Banking

As important as federal banking regulation is to the industry — nearly every insured institution, even state-chartered ones, have to watch it — it’s never the centerpiece of federal policy — except in times of crisis.

Konrad Alt, partner at Klaros Group, is a veteran in banking and financial companies who spent time on Capitol Hill and as counsel to the U.S. Senate Banking Committee and later as chief of staff and senior deputy comptroller of the currency. He says he’s sat in anticipation of elections for decades and learned something.

"There is always a tendency to overestimate the likelihood of major changes on the regulatory landscape," says Alt. "The agencies have large staffs, interests and mandates and a kind of momentum. They can certainly be affected by which party is in power. But none of the agencies is going to turn on a dime."

More typically, he says, they keep going in the same general direction, with comparatively minor course corrections.

"There’s going to be impact," says Alt. "But it’s not likely going to be black versus white. It’s just going to be a different shade of gray."

"It’s very difficult to say whether the leadership that we’re seeing from Biden regulators or from past Trump regulators reflected the preferences of the president or even the Treasury Secretary," says Alt, "or simply the preferences of the individuals who happened to get nominated."

Joshua Siegel, chairman and CEO at StoneCastle Partners, LLC, thinks the status quo will chiefly prevail if Harris comes in, with regulation continuing to be overbearing and continuing resistance to innovation. On the other hand, while Trump appointees might be friendlier to the industry in general, career staff will influence a good deal of what happens.

The status of fintech in Washington is also in flux.

"Like all nascent industries, fintech pushes the boundaries," Siegel says, "and then the boundaries push back. At the fringes, things get messy, but that’s the nature of advancement. You’re trying to cut a road through the jungle."

Read more: The Mushrooming Regulatory Challenges to Banking-as-a-Service: A Field Guide

Politically Tinged Regulation: Will This Change?

A shift from the historical norm is the increasing politicization of bank regulation. Politics has always played a role — it’s Washington, after all — but observers agree that partisanship has become standard. This is not only at the top, but in some papers produced at the staff level.

Take the FDIC. Siegel traces increasing politicization to 2005, when Martin Gruenberg, who came from a senior staff post on the Senate Banking Committee, first become FDIC chairman on an acting basis in that year. He was followed by Sheila Bair, who Siegel also considers more politically oriented than past chairmen. He says the pattern has continued, "and it seems to be getting more aggressive."

"Regulators in general have become very political and very tied to the party in charge of the executive branch," says Siegel. Now, he points out, the vice-chairman of FDIC, Travis Hill, a Republican, has issued statements publicly dissenting from positions backed by the chairman.

CFPB’s Rohit Chopra has clearly aligned with the Biden administration on junk fees, such as high late fees on credit cards and fees on deposit accounts.

Democrats and Republicans United States Capitol

Siegel sees former president Trump as influenced by free market advocates and he thinks this could result in more regulatory appointments of nominees who aren’t going to be as aggressive. "I don’t mean not aggressive on safety and soundness," he adds, "just less aggressive against the industry."

Patomak’s Keith Noreika isn’t as convinced about that possibility.

"I’m not sure it’s going to change as much as you’d think, even if there’s a Republican administration," says Noreika. "There might be different areas of disagreement. But I think the adversarial relationship between the industry and regulators is here to stay."

Noreika adds that Harris has been leaning into support from financial industry professionals, including Wall Street and the major bank cadre. "So you could have some surprises as the political parties and their coalitions change," says Noreika. "She may dial back the adversarial attitude."

Take large bank mergers: "I don’t think it’s all going to be love and kisses," says Noreika. "The Republicans will likely also encourage more competition to the existing banking industry, whether it’s new charters, things like crypto innovation, even alternative charters. There will definitely be tension there."

Read more: Consumers Eye the Impact of Possible Election Turmoil on their Money

Zeroing in on the CFPB and Its Future

The CFPB was once on the Trump kill list. That’s gone by the boards.

During the Trump presidency, "much to everybody’s surprise, the CFPB didn’t close up shop in enforcement," says attorney Alan Kaplinsky. "By and large they weren’t pushing the envelope as Chopra has." But CFPB did, even under Trump, attempt to enforce its mission of consumer fairness, he says.

If Trump wins, Rohit Chopra will be out, predicts Kaplinsky, a veteran consumer financial law attorney at Ballard Spahr LLP. The ability to dismiss a CFPB director at will was tested in the Trump years and the administration won.

The first order of business for a new director — or acting director, if the Democrats hold onto the Senate and play hardball — will likely be unwinding some of the measures imposed by Chopra’s CFPB. Among the targets would be the credit card late fee rule, which is already tied up in federal court.

If Harris wins, change may still come to CFPB. Kaplinsky points out that Chopra has two and a half years left on his term, but may want to take another post. Noreika thinks he might be interested in a post at a prudential banking regulator. (He came to the CFPB after service as a commissioner on the Federal Trade Commission, and has been very active in his statutory role as a board member at FDIC.) If Chopra seeks another office, and if Harris faces a Republican Senate, CFPB may have to operate under an acting director for a time.

Adds Konrad Alt: "It’s not too hard for me to imagine that even in a new Trump administration, you could see some initiatives out of the CFPB that are quite pro-consumer. Don’t forget that Trump is ultimately a populist candidate."

From the archives: Trends 2024: Prepare for Disruptive Activism from a Politicized CFPB

How the Supreme Court Has Shifted Regulation No Matter Who’s in Charge

Earlier this year the U.S. Supreme Court decided four cases that, taken together, change the landscape for rulemaking, no matter which party is in charge.

In a midyear article by Klaros Group’s Michele Alt, The Financial Brand analyzed these cases. An excerpt:

• In Loper Bright v. Raimondo, the Court ended the deference to federal agency expertise that originated with its 1984 decision in Chevron v. Natural Resources Defense Council. This will trigger lawsuits claiming the agencies have exceeded their authority or abused their discretion in adopting various rulemakings or guidelines.

• In the second case, Corner Post Inc. v. Board of Governors of the Federal Reserve System the Court effectively eliminated the statute of limitations on federal agency rulemaking, even decades-old rules, could be challenged.

• In the third case, Cantero v. Bank of America, the Court determined that an evidentiary hearing is required to determine the applicability of any state or local law or ordinance to nationwide banking operations.

• And in the fourth case, SEC v. Jarkesy, the Court determined that an agency must seek civil money penalties from alleged wrongdoers through the courts rather than through its internal administrative enforcement processes.

"These decisions all add up to a significant curbing of regulatory discretion," says Alt. "I think we will see banks much more likely to take their chances in challenging regulators. They will likely challenge every new regulation."

Preparing for Two Variations on Washington Regime Change

Ultimately, once the election is decided, bankers have an evolving economy to cope with. While a Harris victory potentially portends at least a familiar overall policy stance, Siegel is concerned that things will be more challenging should Trump win a second term.

If that’s the case, he says, "bankers will have to be a bit more on their feet and nimble to figure out what it means. If the new president were a more traditional Republican, it would be easier to find direction."

What to do, then? Says Siegel: "Run a clean shop, hope for the best and stay active with your trade association."

About the Author

Profile PhotoSteve Cocheo is the Senior Executive Editor at The Financial Brand, with over 40 years in financial journalism, including the ABA Banking Journal and Banking Exchange.

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