Now that Joe Biden appears to have secured the White House, people have started to speculate about his administration’s policy directions. Such predictions are always problematic. So many things can affect them, from the personnel he chooses to the configuration of thought in Congress, both Republican and Democratic. With Biden, the forecasting problem is particularly difficult, because candidate Biden presented two faces to the public. During the primaries and sometimes during the election proper, he characterized himself as a centrist who would reach across the aisle. At other times he presented a much more progressive program. The difference may come down to the “details” that his “team will flesh out”, to use his words from the campaign trail, but then the devil is always in the details.
Unlike politics in general, things in the area of financial regulation seem much clearer. Here, the Biden team has made a clear commitment to regulating banks and other financial institutions more strictly than the Trump administration has. To underscore that intention, he recently appointed Ted Kaufman, a former partner and long-time supporter of tough new rules for the financial services industry, to lead his transition team.
Mr. Kaufman has been clear for some time that he will limit the size of banks. During his brief stint in the Senate in 2009-2010, when he replaced Biden after the man left the Senate to serve as Barack Obama’s vice president, Kaufman pushed for an amendment to the reform legislation Dodd-Frank financial institution that would have banned any bank from holding more than 10 percent of the nation’s deposits. In the Senate and subsequently in a number of advisory positions, Kaufman repeatedly lobbied for greater transparency among brokers in how they handle stock orders, restrictions on automated trading and limits on how much Washington can tap Wall Street veterans for high-level government positions. Bolstering Kaufman’s agenda are remarks Biden made during the campaign on creating a postal bank, creating a government-run credit reporting company, improving access to capital in historically underserved communities and the extension of mortgage lending to low-income people.
Of course, campaigning, advising on recommendations, even pushing legislation in the Senate are all very different from setting an administration’s political agenda. Still, it is worth considering how things would play out if the Biden administration were to move in these directions. The 10% rule on deposits would inevitably force the downsizing and dissolution of the major banks and perhaps also some of the largest investment advisers in the country, which, although they do not take deposits, control a significant portion of the country’s investable funds. The rest of the agenda – greater transparency, limiting business opportunities and pushing for community lending would affect all aspects of financial services.
With the exception of bank failures, most players in the financial services industry would see this largely as a rollback. After all, the Obama administration engaged in heavy-handed regulation, and many still remember the intense pressure from Washington to lend at lesser appropriations which, under Republican and Democratic administrations, led to the financial crisis of 2008-09. Fintech could feel the regulatory imposition in particular, not because a Biden administration would single out these companies, but rather because they are less accustomed to harsh regulatory constraints than the rest of the industry.
Of course, this type of political agenda is by no means guaranteed. Although at the time of writing, voting power in the Senate remains undecided, the odds still suggest a Republican majority. This could block any legislation needed to achieve many of these goals. Even in the absence of a Republican majority, not all Senate Democrats are necessarily enthusiastic about these kinds of rules. That could also be the case in the House, where Democrats now have a slim majority. It should be noted that even Dodd-Frank, passed in a feverish effort to control financial risks, rejected the idea of breaking up the big banks and instead dedicated a too-big-to-fail designation for these institutions.
Nor should anyone overlook the impact of lobbying by financial firms and their allies, for example the American Chamber of Commerce and the Business Roundtable. The kind of pressure these elements could exert could significantly weaken new regulations, even those that do not require legislation. In this regard, it should be noted that Joe Biden has at least 40 current and former lobbyists on his transition team. Moreover, during Biden’s more than 40 years in the Senate, he worked closely and amicably with many lobbyists. Indeed, many current lobbyists are former aides to Biden. Perhaps more telling is that Biden, unlike Trump and Obama before him, has so far refused to exclude lobbyists from consideration for government posts. Granted, there’s no evidence that Biden ever did any favors for former associates when they acted as lobbyists, but that doesn’t entirely minimize their power to influence the actions of this new administration.
This moment at the end of 2020 is a far cry from regulatory staffing let alone rulemaking. It is even further from the law. Even if the Biden team was initially keen on an intense financial regulatory agenda, they may well water it down in light of future political considerations or the persuasiveness of lobbyists. But for those wondering what could be right or wrong, this image from early staffing announcements and rhetoric might provide some insight.