RegionsNorth AmericaBanks and FIs braced for Biden recruitment drive and Senate seatings

Banks and FIs braced for Biden recruitment drive and Senate seatings

Regulatory changes and fiscal stimulus expected but scope depends on Georgia

Banks and financial institutions are watching closely to see who president-elect Biden will name for key cabinet and regulatory positions, as well as two senate run-off elections in Georgia.

It is expected that president-elect Joe Biden will nominate Janet Yellen to be treasury secretary. It is widely believed she would make liberal use of stimulus and emergency credit if confirmed for the job. Yellen has previously served one term as Chairwoman of the Federal Reserve between 2014 and 2018.

However, the shape and expansiveness of any future stimulus package is dependent on the two senate run-offs. Democrats will control the Senate if they win both seats while the Republicans only need to win one to remain in control.

“If the Senate stays in republican hands, we’re likely to see a slower timeline for passage as well as a more moderated size of a coronavirus [stimulus] package,” said Naomi Camper, chief policy officer at the American Bankers Association (ABA) during this year’s BAFT conference.

On top of pushing for greater economic stimulus, Yellen’s past statements also indicate she would pursue more regulatory reform.

“Our current regulatory system suffers from significant deficiencies and the regulatory work undertaken after the crisis is still incomplete,” she said during a keynote address to the Griswold Centre for Economic Policy Studies in 2018.

“The current focus on reducing regulatory burden is diverting attention from financial stability work and, as I’ve noted, has undermined progress in some significant areas to address the very real risks of financial instability.”

Regulatory change will be more nuanced as the different agencies that oversee the banking sector do not share the same governance structures. For example, the heads of the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) do not have fixed terms. Camper expects new leadership for both those regulators come January 20, 2021.

She added that another agency, the Federal Deposit Insurance Corporation (FDIC) has a fixed term for its head but both the OCC and CFPB have representatives on the FDIC’s board. Like with fiscal stimulus, the pace of change will depend on Georgia and the fate of its two Senate seats.

“If the Republicans maintain control of the Senate, it is less likely that we’ll get sweeping legislative changes. We may still get a lot of change through regulatory means. Large legislative changes that don’t garner bipartisan support are really off the table,” said Camper.

Though Republicans and Democrats differ in how they engage with the banking sector, Camper stated that both parties hold the same view of the banking industry as paramount for allocating capital and providing economic opportunity for the wider community. How these differences manifest is in what objectives they prioritise.

“We may see different emphases from the parties in terms of, what’s the right way for the banking community to engage? What level of oversight or specified responsibilities comes along with the privilege of a banking charter or Federal Deposit Insurance and how does that play out across communities?

“There may be additional emphasis from a Democratic administration on enforcement or disclosure levels: Are banks doing a good job of serving all communities and being inclusive? Frankly, that’s something that the banking industry is in agreement on, our business, our pie and share of financial services gets bigger, the more people we serve.”

One issue Camper said the ABA is set to tackle with the new administration in on Current Expected Credit Losses (CECL)

“CECL is of tremendous concern to many in the banking industry because it has a procyclical impact. Exactly at times when banks should be lending the most, they may be most concerned about ratcheting back credit availability.

“[ABA’s] agenda doesn’t change with the political winds. Our agenda for the coming year looks a lot like it did last year. Because our agenda is driven by whatever our members tell us is important to them.”

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