Banks Face Changes After Midterm Elections

Financial Services Law

What impact will the midterm elections have on banks?

While the Republicans retained control of the Senate, a Democrat-led House is expected to reverse course on the past two years of easing regulatory burdens and enacting tax cuts. Whether that will mean any real, substantive change for banks remains an open question.

What happened

On November 7, the midterm elections signaled a change in Washington, D.C., for financial institutions. Although the Republicans maintained control over the Senate, the House of Representatives now has a Democratic majority.

This split of power between the two houses will likely mean that only rare bipartisan issues will bring the parties together in agreement to pass legislation. On the one hand, this means that additional regulatory relief and tax cuts are not likely in the cards for banks.

On the other hand, it means that any efforts by the Democrats to reverse course and increase the oversight of financial institutions won’t get off the ground, lacking any support from the Senate.

One key change: With the Democrats in charge, Rep. Maxine Waters (D-Calif.) is the leading name as the next chair of the House Financial Services Committee, starting in January 2019. An avowed critic of President Donald Trump who has called for his impeachment, Rep. Waters has already pledged her support for an agenda of consumer protection and a crackdown on big banks.

As she told constituents last month, according to American Banker, “Of course the CEOs of the banks are now saying, ‘What can we do to stop Maxine Waters? Because if she gets in, she’s going to give us a bad time.’”

A veteran of the committee since 1991 (when it was then known as the Banking, Finance and Urban Affairs Committee), Rep. Waters has been ranking member on five of the panel’s subcommittees, including chairing of a housing subcommittee from 2009 through 2011.

Other likely topics for Rep. Waters to push: updating the Community Reinvestment Act, reforming housing finance and opposing President Trump’s regulatory appointees.

“I am committed to ensuring that hardworking Americans and our nation’s small businesses have opportunities to thrive, expanding and supporting affordable housing opportunities for our nation’s families, making sure that the safeguards are in place to prevent another financial crisis, protecting consumers and investors from bad actors and conducting appropriate oversight of the Administration and the regulatory agencies under the Committee’s jurisdiction,” Rep. Waters told American Banker in a statement.

“I have always maintained an open-door policy, to hear the priorities and concerns of all stakeholders, including representatives of the financial services industry, as well as advocates,” she added. “I look forward to continuing to work with Members on both sides of the aisle on sensible solutions to benefit hardworking Americans and strengthen our nation’s economy.”

Why it matters

Although the House of Representatives may seek to increase regulation of financial institutions now that Democrats have taken control, their power remains checked by the Republican majority in the Senate. House Democrats can leverage subpoena power to put pressure on banks and make their lives more difficult, but will be unable to enact legislative changes without the support of the Senate and President Trump. Similarly, legislative changes proposed by President Trump may be stymied by the House of Representatives, forcing the President to act by executive order, where possible, to implement his legislative objectives.

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Check out our on-demand midterm elections webinar to hear more from Brian Korn about how he sees the midterms affecting the financial services industry.