The U.S. president has a lot of power to shape the policies that determine how banks do business. Many of these policies affect consumers through their bank accounts, credit cards, loans, and other financial products and services.
So the way banks operate could be affected by which man wins November’s election, President Donald Trump or former Vice President Joe Biden.
“The president has broad power to set banking regulations both directly and indirectly,” says Brian Clark, assistant professor in the Lally School of Management at Rensselaer Polytechnic Institute.
One power the president has is to nominate people to fill government positions such as the Treasury secretary, comptroller of the currency and director of the Consumer Financial Protection Bureau. These nominations must be confirmed by the Senate, but they give the president a lot of influence in how bank regulations are enforced.
While each president has his own agenda, Democrats tend to support more regulation while Republicans generally prefer less.
With Trump, More of the Same?
True to that form, the Trump administration has focused largely on deregulation of banking as well as other industries.
Smaller banks have been freed from stress tests that assess a bank’s ability to withstand a severe financial crisis. A retreat from the so-called Volcker Rule has allowed some banks to make more speculative investments. The stress tests and Volcker Rule are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010 to respond to the 2008 financial crisis.
“If Trump were to win in November, the winners will be the financial institutions and their shareholders, who will continue to see a lighter regulatory regime,” says Jonathan L. Levin, a senior counsel in the Financial Industry Group at the Reed Smith law firm.
Would Biden Mean More Oversight?
Also true to form, the Biden campaign has proposed tighter banking regulation.
The Dodd-Frank rules that have been allowed to lapse could be reinstated. The CFPB may step up its consumer protection and bank enforcement efforts. The Community Reinvestment Act, which encourages banks to make loans in communities where they do business, could be expanded. A task force Biden helped create touted the idea of a government-run banking service.
Overall, Biden’s approach would likely echo that of the Obama administration.
“Biden’s focus would be on consumer protection, and the banks would be expected to bear additional regulatory burdens compared to today,” Levin says. “We do have to remember, though, that regulators want banks to be profitable, so it’s hard to say how much change we’d actually see.”
Crises May Matter More Than Politics
Regulation isn’t the only way government policies affect banks and their customers. In fact, broader economic policies may have a bigger impact since banks depend on economic activity to create demand for their products, such as credit cards and loans.
Consider the 2008 financial crisis. The Obama administration tightened bank regulations after the crisis hit, but it was then-President George W. Bush, a Republican, who signed the $700 billion Troubled Asset Relief Program, known as TARP, into law. This program authorized the U.S. government to purchase troubled assets and invest in financial institutions to strengthen the economy.
Fast forward to 2020, and it was Trump, also a Republican, who approved the Coronavirus Aid, Relief and Economic Security Act. This program authorized $2 trillion in government funds to respond to the economic slowdown triggered by the COVID-19 pandemic.
Looking forward, new government programs like TARP and CARES may turn out to be more important for banks than regulation.
“Regardless of who’s in the White House, the stimulus will likely continue in some form,” Clark says.
One other area that will possibly be affected by who’s in the White House is regulation of the financial technology, or fintech, industry – technology used to operate banking businesses.
“A pro-regulatory Biden administration would likely bring changes to fintech companies and have them regulated more like banks,” Clark says.
It’s Not Just the Presidential Results That Matter
Congress also has a say in banking regulation and economic stimulus since it can make and modify laws through legislation.
If a single party controls the White House, Senate and House, that party can more easily enact legislation to make sweeping changes. With a divided government, either party would have a harder time going big for or against banking regulation.