What Trump’s reelection would mean for banks
WASHINGTON — If the 2016 election is any indication for bankers, they shouldn't rule out President Trump's reelection in November, despite polls showing an advantage for former Vice President Joe Biden.
Current projections clearly favor the presumptive Democratic nominee. But observers say if Trump catches up to Biden and wins reelection, the pro-business agenda that defined his first term would be magnified in a second. Trump-appointed regulators, with added job security, could aim to privatize Fannie Mae and Freddie Mac, strengthen reforms to the Community Reinvestment Act, further ease capital requirements for community banks and give tech firms more latitude to operate within the financial system, among other things.
If Trump wins, "the White House and the regulators too are going to feel emboldened and I think they are going to feel a little bit more willing to go out and be assertive on deregulatory measures,” said Ian Katz, a director at Capital Alpha Partners.
The most direct result of Trump's reelection would be that the administration retains control over who heads the agencies, meaning less uncertainty about leadership for agencies like the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency.
A longer tenure for CFPB Director Kathy Kraninger would mean the agency could finalize changes to mortgage rules sought by the industry, among other things. And with acting Comptroller Brian Brooks potentially able to stay longer or the administration better positioned to nominate a successor to former Comptroller Joseph Otting, the OCC could try to expand support for its recent CRA rule. To date, other regulators such as Federal Deposit Insurance Corp. Chair Jelena McWilliams have balked at supporting the rule, but that could change in a second term.
CRA, community bank relief, FSOC
"It breathes new life into this Community Reinvestment Act fight," said a former Republican congressional staffer. "OCC has obviously led the charge on that with Otting. It feels like McWilliams wants to do something but hasn’t. … I think that if Biden loses, you’ll see another effort to reform CRA in a meaningful manner.”
Katz said regulators may be proceeding cautiously on regulatory relief before the upcoming election, but that a Trump victory could trigger a more aggressive approach.
“Maybe to the extent that the Fed and the FDIC have been sensitive to public opinion and sensitive to feedback from some of the Democrats, they may feel a little bit more like they’ve got the wind at their backs and are willing to be assertive in deregulation,” he said.
One other possible area of focus in a second Trump term is providing more relief for community bankers. The Community Bank Leverage Ratio, a simplified measure that institutions with assets of less than $10 billion can use instead of more complex capital requirements, was temporarily lowered to 8% by Congress in the coronavirus relief package enacted in March. But the regulatory agencies could retain that level over the long term.
“We are looking for a permanent 8% community bank leverage ratio,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.
Meanwhile, observers also expect the Financial Stability Oversight Council in a second Trump term would further deemphasize its authority — established by the Dodd-Frank Act — to designate "systemically important" nonbanks for tougher supervision. The Trump administration already removed the designation for MetLife, Prudential and American International Group.
“I could see the FSOC and [the Office of Financial Research] sitting on their hands and not doing anything with systemic risks, especially those that have developed outside the traditional banking sector,” said Gregg Gelzinis, senior policy analyst at the Center for American Progress.
Focus on fintech
Trump-appointed regulators could also build on prior steps making it easier for fintech companies to offer banking products. Varo Money was already able to obtain a national bank charter, and Square was approved for an industrial loan company charter.
“I think that we’ve seen little signs that ... the OCC and the FDIC are starting to move a little bit more on fintech,” Katz said. “I think there is a certain momentum within the bank regulators in Washington to move things along to facilitate the operation of fintech and the integration of fintech more into the banking system and I think that will continue and may even be accelerated.”
Regulators in May also finalized a rule that would sidestep the 2015 Madden v. Midland Funding court decision that limited banks’ ability to sell off loans. The regulators said that a loan's interest rate can remain legally intact even after the loan is acquired by a purchaser in a state with a lower rate cap.
The decision, which was largely viewed as positive for financial technology lenders, was largely supported by Republicans in Congress.
“I think we would see a lot of interest at least in looking at ways that fintech can be employed, and can be used by financial institutions in underwriting, and allowing partnerships to be forged between banks and fintech firms,” the former Republican congressional staffer said. “That seems to be a big thing. Everybody I talk to at the regulatory agencies seems to be talking about that.”
Fannie and Freddie
In a second Trump term, the Federal Housing Finance Agency under Director Mark Calabria would likely stay the course on efforts to end Fannie and Freddie's conservatorships.
For one thing, a Trump victory in November could give Calabria a little more job security. An ongoing court battle over the leadership structure of independent agencies like the FHFA means a Biden administration could seek to replace Calabria.
The agency is currently poised to finalize a post-conservatorship capital framework for Fannie Mae and Freddie Mac by the end of this year that would require the government-sponsored enterprises to hold more than five times their current capital levels.
Calabria has projected that the GSEs would make a stock offering in 2021 or 2022, which he said would precede an exit from conservatorship in 2022 or 2023.
If all goes as planned, Calabria has said that he hopes that Fannie and Freddie will be out of conservatorship by the time his term as director ends in 2024, although he has emphasized that it isn’t guaranteed.
An emboldened CFPB under Kraninger
The CFPB in Trump's first term has already walked back numerous Obama-era consumer protections, most notably strong underwriting requirements for payday lenders.
If Trump were reelected, it would provide certainty for Kraninger's job atop the bureau — similar to Calabria's position at the FHFA — and allow her to finalize key reform initiatives.
Those include an effort to ease the "Qualified Mortgage" rule. Kraninger could also lead the rulewriting of data collection efforts required for small-business lenders under Dodd-Frank, and a potential overhaul of how the agency implements the Equal Credit Opportunity Act.
For consumer advocates, a Trump reelection largely means they are going to remain on the defensive.
Graciela Aponte-Diaz, director of federal campaigns at the Center for Responsible Lending, said a Trump victory would put initiatives like a national consumer loan interest rate cap on the back burner.
“We haven’t really seen any pro-consumer protection bills in Congress since the Dodd-Frank financial reform, since Trump has been in office,” Aponte-Diaz said. “We have spent the bulk of our time lately in defense mode from the deregulation, from the actions on the federal rules.”
Hannah Lang and Kate Berry contributed to this article.