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2020 Election preview: Banking

INSIGHT ARTICLE  | 

With the election approaching, RSM is looking at the economic stakes and the key issues for various industries and sectors. This is one in our series of election previews.

The top policy issue for Banking

Taxes. In 2017, the Tax Cuts and Jobs Act reduced the corporate tax rate from 35% to 21% and the tax rate for individuals and owners of pass-through entities from 39.6% to 37%. No matter which side of the C-Corp or S-Corp coin you land on, President Trump’s tax law change most likely benefited a bank’s bottom line (or its owner’s personal tax return, in the case of a pass-through entity). Any changes to these rates—as proposed by Biden—would most likely reduce those returns.

IF TRUMP WINS

Two scenarios are important to consider: First, there is a Trump win with a Republican-controlled Senate. In this scenario, the status quo will serve as the baseline for the banking industry, with the possible upside of further regulatory relief seen specifically through measures targeted at community banks. The second scenario is a Trump win with a Democratic-controlled Senate. In this scenario, the status quo is considered the constant, as philosophical differences in the level of regulation would prevent either new, significant regulatory laws from being signed by Trump, or meaningful regulatory relief being passed by a Democratic-controlled Senate.

IF BIDEN WINS

Two similar scenarios are important to consider: First, there is a Biden win with a Democratic-controlled Senate. In this scenario, the big-ticket item would be passage of tax changes. Moreover, while the biggest banks are likely to receive more scrutiny, some of that attention may flow to large regional banks; community banks may receive help in their fight to prevent non-depository fintech companies from accessing the banking system. The second scenario is a Biden win with a Republican-controlled Senate. While such a schism is not likely to bring about any sweeping action on either side, legislation on marijuana banking may advance as a good-faith effort by Republicans to help banks despite the division in power.

Other banking issues:

Whether or not there is a change in administration, the opportunity will arise for the president to appoint the heads of major banking regulators when current terms expire. Any changes at the top of these agencies may affect regulatory oversight at each agency. This may lead to further discussion of updating select regulations, such as the Community Reinvestment Act and Bank Secrecy Act/Anti-Money Laundering regulations.

The Trump administration’s effect on the industry:

The impact of the past four years on the banking industry has been positive. Whether it was the passage of the TCJA or rollback of regulatory rules implemented after the Great Financial Crisis, the banking industry has seen changes that have allowed for earnings increases and lessened some of the costs associated with compliance.

By the numbers: $61 billion

The total taxes paid by banks in 2019. This represents a nearly 37% decrease from the taxes paid by banks in 2017, before the TCJA took effect. A change in tax rate, as proposed by Biden, would lead to a measurable increase in taxes paid.

In preparation for the outcome, banking companies should consider:

While a potential change in the White House and the Senate is important to consider, banks must start thinking about near- to midterm growth and operational plans. Such plans aren’t limited to mergers and acquisitions, which may need to be expedited if new, less favorable tax policy is looming. Banks also need to consider how changes in regulations may affect issues ranging from required bank capital to regulatory compliance and whether enhancements will be needed should regulations change.

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