“The worst ideas on the progressives’ policy and personnel wish lists — including government competing head-to-head with the private sector — will be shelved,” said Peter Freeman, a principal at FS Vector and a former House Republican aide.
Cliff Roberti, co-founder of Federal Hall Policy Advisors and a onetime House Republican staffer, said a Biden White House and Republican-controlled Senate would be a “net positive for the financial services industry — especially given pre-election expectations.”
Those expectations of a Democratic victory were stoked by polls and financial contributions that indicated the party had a big edge heading into Election Day. But many of the candidates underperformed in battleground states and control of the Senate may remain in flux until early January, when both of Georgia’s Senate races are apparently headed for runoff elections.
No matter who wins a majority in the upper chamber, banks and other financial firms still face headaches over Biden’s ability to appoint new leaders to federal agencies. But even here he may opt to name more moderates to those posts to avoid confrontations if the GOP takes the Senate, lobbyists said.
“Bankers will be in better stead with more stability on the congressional side” if Republicans maintain Senate control, said Paul Merski, vice president of the Independent Community Bankers of America. “You won’t have dramatic shifts in banking policy. The real change may be how you address the regulatory agencies — and the Senate could have an influence on that as well.”
Progressive groups are so alarmed that they’re urging Biden to use every option to sidestep potential GOP obstruction of his nominees. One tool is the Federal Vacancies Reform Act, which allows a president to elevate existing government employees and Senate-confirmed officials to lead agencies.
“From those strategic perches, Biden can reverse much of Trump’s unpopular deregulatory rampage,” said Jeff Hauser, executive director of the Revolving Door Project.
But most significant legislation would probably not get very far.
“All those bills the House has passed over the years waiting for a Democratic Senate may or may not come to fruition,” Consumer Bankers Association President and CEO Richard Hunt said.
Since winning control of the House in 2018, Democrats have passed new safeguards for consumer credit reporting and proposed a nationwide cap on interest rates for loans. Those would likely be impossible to enact as law with a Republican Senate, as would Democratic proposals to expand banking services offered by the Postal Service and to create a public credit reporting agency.
The biggest unknown would be the extent to which Senate Republicans would go along with economic relief that Biden and the Democrats — as well as Wall Street executives and investors — say is desperately needed on a massive scale amid a resurgent coronavirus.
A smaller-scale stimulus bill would be a loss to banks and other financial firms that stood to benefit. But Senate Majority Leader Mitch McConnell (R-Ky.) kept hope alive Wednesday, saying he believes a rescue plan was necessary and needed to be finished by the end of the year.
“A stimulus package is still possible, maybe probable, but it will likely be a smaller deal than in a blue wave scenario,” Stifel Chief Washington Policy Strategist Brian Gardner told clients in a report Wednesday, when a GOP Senate looked like a strong possibility. “We think it will be under $2 trillion, which could disappoint investors.”
House Speaker Nancy Pelosi has been pushing for a package of more than $2 trillion, while McConnell has warned that many Republicans will not support a bill that exceeds $1 trillion. While President Donald Trump has sent mixed signals about how much stimulus he favors, Biden has pressed for a new round of substantial aid.
But after that, lobbyists say financial firms should feel relieved.
Biden has pledged to increase the corporate tax rate, raise levies on wealthy individuals and increase capital gains taxes from levels long enjoyed by private equity investors. Those are off the table if the Senate stays in Republican control.
A “Blue Wave” was also expected to unleash layers of new regulations and scrutiny sought by Democrats, as well as progressive-leaning watchdogs that Biden may have nominated for key financial posts, but now all that would face stiff opposition if Republicans keep the Senate. Sen. Elizabeth Warren (D-Mass.), one of Wall Street’s biggest critics in Congress, has been pushing to be named Treasury secretary if Biden wins. Bernie Sanders wants to be Labor secretary.
But even without help from Congress, his regulators could move ahead with plans to scrutinize banks for climate change risk and to rewrite anti-redlining rules. How far they go depends on whom Biden hires.
Biden wouldn’t need to worry about the Senate confirmation process when it comes to naming temporary leaders of the Consumer Financial Protection Bureau, a powerful independent agency set up by Warren, or the Comptroller of the Currency, which regulates national banks. The former vice president could appoint new heads of those agencies on an acting basis soon after his inauguration and take time securing Senate confirmation for more-permanent replacements.
He would not be able to immediately replace the heads of the Federal Reserve or the Federal Deposit Insurance Corp., unless they stepped down, but Democrats could quickly ascend to acting leadership roles at the Securities and Exchange Commission and Commodity Futures Trading Commission.
Biden’s Treasury secretary would lead the Financial Stability Oversight Council, which consists of top regulators across government and was set up after the 2008 financial crisis.
“The risk of harmful legislative changes is considerably diminished, and a Republican Senate will provide an important counterbalance to an aggressive regulatory agenda,” Roberti said. “With that being said, significant regulatory risk will remain for the industry — particularly for financial institutions and other heavily regulated sectors.”
Biden-picked officials could enact rules to rein in CEO pay and also expand disclosure of corporations’ climate-related and political spending activities, said Lisa Gilbert, vice president of legislative affairs for Public Citizen. Graham Steele, a former Senate aide who now directs the Corporations and Society Initiative at the Stanford Graduate School of Business, outlined in the American Prospect last year sweeping steps agencies can take on their own, including capping the size of big banks and cracking down on private equity management fees.
Isaac Boltansky, policy research director for Compass Point Research & Trading, said the combination of Biden and a GOP Senate would benefit the financial industry.
“With the Red Wave off the table, this was the best possible outcome for banks as it effectively takes tax increases off the table and it should foster a renewed sense of structural stability that has been absent in recent years,” he said.
“There are broader concerns — including the arc of the recovery without sizable stimulus — but at least for today, a steady tax code, some fiscal support and a stable macro backdrop is a win for banks.”