Joe Biden is the projected winner of the presidential election; control of the Senate will be won by a slim margin following runoff elections for Georgia’s two seats in January. What does a divided government mean for the middle market? RSM is looking at the policy implications and key issues for various industries. This is one in our series of industry-focused outlooks for a Biden administration.
According to Joe Biden’s plan:
With Biden’s big-ticket items such as tax changes almost certainly off the table if Republicans retain control of the Senate, the focus of the banking industry will shift to regulation. From a regulatory oversight perspective, the biggest banks are likely to receive more scrutiny, with some of that attention flowing down to large regional banks. Despite these changes, however, community banks may receive help in their fight to prevent non-depository fintech companies from accessing the banking system.
What a closely divided Senate means for banking:
Biden will have the opportunity to appoint the heads of major regulators when their current terms expire, the first being the chairman of the Securities and Exchange Commission. The current head, Jay Clayton, has announced his departure at the end of the year. But these leaders need to be approved by the Senate, and Republican control will most likely provide a check on nominees with more ambitious pro-regulation agendas. Still, we expect a vigorous debate on regulatory oversight at each agency. This may lead to further discussion of updating select regulations, including the Community Reinvestment Act and Bank Secrecy Act/Anti-Money Laundering regulations, as well as new or additional disclosures in public company filings related to diversity and climate change.
Some of these shifts in regulatory priorities do not require the approval of Congress. But other, more ambitious goals—like proposed tax changes—will require congressional approval, and Republican control of the Senate will place the passing of such measures in doubt.
What room for growth or evolution exists in banking?
In addition to contemplating where banks may fall in the regulatory crosshairs, with the largest of banks likely to see the most scrutiny, all banks must start thinking about near-term to midterm growth and operational plans. Such plans are not limited to mergers and acquisitions, investments in technology, and enhancing capabilities in the compliance department. Banks also need to consider how potential increases in regulatory capital levels may affect their organizations.
Questions that frame the path forward:
- How aggressively will oversight agencies restore regulations eased under the Trump administration?
- How aggressively will Congress behave toward the banking industry, and would a Republican-controlled Senate restrain some of the more ambitious legislative efforts?
- Will stricter capital requirements lead to reduced profitability among banks, and how will they compensate?