With Biden declared winner, what’s next for banks?

WASHINGTON — Democrat Joe Biden’s narrow victory in the presidential election shifts the balance of power in the nation’s capital over key banking policies.

Following an Election Day in which there was no outcome and the uncertainty continued through most of the week, Biden was declared the winner over President Donald Trump after major news networks projected he had won the key battleground state of Pennsylvania. As of Saturday morning, Biden was projected to have 273 electoral votes to 214 for Trump.

Biden’s defeat of the incumbent after a bruising 2020 presidential campaign will give the incoming administration substantial power to appoint new financial regulators, shape policies such as the future of housing finance and Community Reinvestment Act reform, and possibly advance progressive banking ideas that have failed to gain traction under a Republican administration. However, the president-elect may have to contend with a divided Congress, as Democrats still have a steep climb to seize enough seats in the Senate to take control with some key races still to be decided.

It remains to be seen what moves the Trump administration might make with two and a half months remaining in power. Key leadership posts at the regulatory agencies are somewhat uncertain, and legislative priorities such as marijuana banking and anti-money-laundering reform are still pending in Congress.

Here are key banking policy areas that could be upended as a result of Biden’s victory.

With contributions by Kate Berry, Brendan Pedersen, Kevin Wack and John Heltman.

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Leadership and focus of the CFPB
The incoming Biden administration could move swiftly to appoint a new director of the Consumer Financial Protection Bureau focused on helping vulnerable consumers who are struggling financially during the pandemic.

CFPB Director Kathy Kraninger is likely to submit her resignation or be fired, according to experts, given that the Supreme Court ruled earlier this year that the bureau’s director can be fired by the president without cause.

In that case, the next director, who may serve on an interim basis until a permanent director is confirmed by Congress, would move immediately to address pandemic-related issues. For example, mortgage servicers, auto lenders and debt collectors could be in the spotlight for how they implement forbearance policies. The three credit bureaus could also come under the microscope.

Whoever Biden nominates to run the agency — the CFPB’s third permanent director in its history — is likely to pursue a robust consumer-focused agenda, including rolling back the regulatory relief granted to payday lenders in a recent rule, strengthening restrictions for debt collectors and ramping up enforcement actions. Helping consumers deal with student loan debt and overdraft fees could also be priorities. Still, it is possible a Biden administration would need to choose a director amenable to Senate Republicans if the GOP holds on to the upper chamber of Congress.

Experts also expect that staff restructurings at the agency under the Trump administration, which deemphasized enforcement actions and fair-lending investigations, will be reversed to revive an Obama-era focus on enforcement. The Biden transition team also may focus on personnel including bringing back some staff who worked under former Director Richard Cordray. Some even believe a Democratic-led CFPB will seek to restore a rule restricting mandatory arbitration clauses, which was repealed by the Republican-led Senate in 2017.
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Housing finance reform
The Biden administration’s ability to shape the future of Fannie Mae and Freddie Mac depends on the outcome of a Supreme Court case challenging the single-director structure of the Federal Housing Finance Agency.

If the high court rules the same way it did in a case challenging the same structure at the Consumer Financial Protection Bureau, Biden would be able to fire current FHFA Director Mark Calabria and replace him with someone new, although a new FHFA leader may need the support of Senate Republicans. Biden could potentially attempt to fire Calabria before the court rules by citing CFPB case as precedent.

But the Biden team’s priorities for reforming the housing finance system are still unclear. It’s possible the new administration could align itself with various Capitol Hill proposals touted by Democrats like Sen. Sherrod Brown, D-Ohio, that envision spinning out Fannie and Freddie into a government utility. Biden may also view Fannie and Freddie as a tool to bolster affordable housing and homeownership.

If the new president-elect does not replace Calabria, the new administration will still wield significant power over the government-sponsored enterprises by virtue of the Treasury Department.

Much of Calabria’s work to release Fannie and Freddie from conservatorship has been done in concert with Treasury Secretary Steven Mnuchin, who shares Calabria’s goals of privatizing Fannie and Freddie. But a Treasury secretary under Biden could make Calabria’s plans more difficult.
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Appointments at financial regulatory agencies
Besides Kraninger at the CFPB and potentially Calabria at the FHFA, Biden may have the chance to make other regulatory appointments early in his administration, but those are less certain.

A lot of what Biden can do depends on actions by the Senate and the Trump administration between now and his inauguration.

There is currently a vacancy atop the Office of the Comptroller of the Currency, with Brian Brooks currently serving as acting comptroller. If Brooks is still acting when Biden takes office, the new president would be able to quickly nominate a permanent successor to former Comptroller Joseph Otting. But Trump could try to appoint a permanent comptroller in the lame-duck period.

Meanwhile, two Trump nominees for the Federal Reserve Board — conservative economist Judy Shelton and Christopher Waller, the director of research at the Federal Reserve Bank of St. Louis — are still awaiting Senate confirmation.

Although Waller’s nomination is noncontroversial, it remains to be seen if Shelton has enough Republican support to be approved. If the Senate fills both seats, Biden won’t be able to nominate anyone to the Fed until Vice Chairman for Supervision Randal Quarles’ term expires in 2021. Fed Chair Jerome Powell’s term, meanwhile, expires in 2022, and Biden could very well choose to re-nominate him given Powell’s bipartisan popularity.

Federal Deposit Insurance Corp. Chair Jelena McWilliams can stay in her role until 2023, but she could decide to offer her resignation to Biden, as former FDIC Chair Sheila Bair did at the end of 2008 to Barack Obama’s transition team. (Obama asked Bair to stay on.)

An FDIC spokesperson told American Banker in August that McWilliams “was confirmed to a five-year term and she intends to fulfill it. Any speculation to the contrary is just that, speculation.”

But any Biden nomination to run one of the bank regulators may require approval from Senate Republicans if the GOP holds on to power in the upper chamber of Congress.
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Reform of the Community Reinvestment Act
Biden’s victory is also a massive policy win for advocates concerned about the Trump administration’s approach to modernizing the Community Reinvestment Act.

The effort to modernize the 1977 anti-redlining law — largely led by the Office of the Comptroller of the Currency — has been controversial at best. Since the OCC and FDIC unveiled a reform proposal in December 2019, leading consumer groups and community advocates have panned the effort as an attempt to “gut” the law’s obligations for banks and undercut investments in the low-income neighborhoods that need them most.

The OCC ultimately finalized the rule in May, but the FDIC declined to approve the rule and the Fed had balked at the agencies’ earlier proposal. More recently, the central bank unveiled its own outline for reforming the law.

The discord over CRA reform did not escape the attention of the Biden campaign. One tenet of the former vice president’s housing policy platform is a call to “strengthen and expand the Community Reinvestment Act to ensure that our nation’s bank and non-bank financial services institutions are serving all communities.”

Some analysts believe that statement was a clear sign that the new administration could seek to overturn the OCC rule and encourage the agencies to come up with a joint reform plan. The OCC rule has had the backing of acting Comptroller Brian Brooks. If the Trump administration fails to appoint a permanent comptroller, that would enable the incoming administration to name a successor willing to reopen CRA reform talks with the other agencies.

The OCC plan spearheaded by former Comptroller Joseph Otting includes an ambitious but controversial new scoring framework that consolidates previously separate tests for retail lending and community development. The Fed outline, led by Gov. Lael Brainard, has much in common with the OCC’s rule but maintains separate testing silos for retail lending and community development activity.
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Progressive banking policies
Policies designed to bring more Americans into the financial mainstream should get a major boost during the Biden administration.

Specific ideas that are likely to be on the table include offering banking services at U.S. Postal Service locations, curtailing banks’ ability to earn money from overdraft fees, providing universal accounts to all Americans and reforming the credit reporting system.

All of those proposals have been championed by members of the Democratic Party’s progressive wing, including Sens. Bernie Sanders and Elizabeth Warren. The they are likely to draw pushback from banks, congressional Republicans and even some moderate Democrats.

The ultimate policy outcomes are hard to predict. A renewed focus on expanding financial inclusion could result in compromise policy outcomes that land to the right of the progressives’ wishes, but to the left of the status quo. Many of the proposals likely also require congressional approval, which would be an uphill climb if the Senate remains in GOP control.

The debates on some of these issues will likely be about whether the private sector can be relied upon to provide remedies and, conversely, the extent to which the federal government should serve as a provider of affordable financial products and services.

For instance, the Biden campaign has embraced the concept of a public credit reporting agency, which would seek to reduce racial disparities in lending. But the former vice president has not endorsed the idea that this new public system would replace the likes of Equifax, Experian and TransUnion, as the progressive think tank Demos has proposed.

Instead, under the Biden plan, a new government-run system would offer competition to the three big private-sector credit bureaus.
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COVID fallout
Throughout the COVID-19 pandemic, President Trump embraced a hands-off approach to containing the virus, while Biden’s plan for containing the virus in the near term involves expanded testing and widespread access to personal protective equipment such. That difference could have significant long-term implications for the economy and the banking industry.

One study in the scientific journal Nature in September found that with no national interventions, COVID will have claimed more than 511,000 American lives by the end of February. Many of those deaths will be unavoidable, but that same study found that with a 95% mask compliance rate, some 130,000 more lives could be saved.

The pandemic will likely continue to have a dramatic effect on the economy. Morgan Stanley issued a report in September that estimated that even if a vaccine is developed in the spring of 2021, the economy will not return to pre-COVID levels until early 2022, and certain indicators like unemployment and capital expenditures could remain subdued until 2025.

The banking industry has been able to avoid a direct financial hit from the crisis, but bankers have also hoped for an additional round of congressional stimulus to lighten the regulatory load and continue to ease the economic impact for consumers. Before the election, congressional talks over a new stimulus deal — following enactment of the Coronavirus Aid, Relief, and Economic Security Act — broke down, and Trump expressed little interest in reaching an agreement before the election.

If Trump decides to focus on an economic relief package in the lame-duck period, he would still face a divided Congress. If such an effort failed this year, a Biden administration could attempt to make inroads to lessen the economic strain caused by COVID as the pandemic continues.