Wall Street has made its peace with a
Finance executives will be closely watching how Biden handles the coming internal Democratic fight between centrists and progressives that threatens to increase regulation and dent profits.
Firms are counting on his business-friendly inner circle -- a group that includes long-time Democratic stategists, corporate lawyers and former lobbyists -- to exert the most influence in selecting nominees for agencies like the
Yet liberal Democrats, inspired by Senator
“Personnel is policy,” and progressives have come into the fight “armed with a bazooka,” said
Hanging in the balance could be the reach of post-crisis rules that were eased during the Trump administration. Over the past four years, adjustments to complex requirements like capital levels, collateral for derivatives trades and brokers’ legal responsibilities have saved banks tens of billions of dollars. Firms are also concerned there will be a fresh focus on investigations, a clampdown on executive pay and that regulators will be slow to lift restrictions on dividends and share buybacks that were implemented due to the pandemic.
Biden has already tapped former Commodity Futures Trading Commission Chairman
Though banks, private equity firms and
In a nod to Biden’s pledge to have a diverse administration, their candidates include women and people of color who have experience at investment firms. A number, too, have worked under Obama, making them a known quantity to Wall Street.
The progressives, however, say they plan to draw the line at regulators in the vein of
Still, with the chances of Democrats taking the Senate looking challenging, the financial industry might dodge some of the most arduous measures that Washington could have thrown at them. That includes higher corporate taxes, new levies on stock trading and high-profile Senate hearings where CEOs would face a barrage of uncomfortable questions.
Along with the slate of new agency chiefs, the Biden victory will impact financial companies large and small in numerous ways. What follows is a look at several agencies and policy areas that will be on the front burner as the Biden administration begins in January.
New Constraints on Pay?
More than a decade since Congress passed the
While firms sought to get out in front of the rules by beefing up their own policies for clawing back bonuses and withholding deferred pay, watchdogs appointed by Biden could mandate requirements that are much tougher that those that companies have adopted.
A Private Equity Reckoning?
It’s no secret that
Democrats’ goal of imposing new taxes on buyout firms will face headwinds in the Senate. But it’s possible eliminating the carried interest loophole, which allows partners’ profits to be taxed at a lower capital gains rate rather than as income, could draw bipartisan support. Other tax targets that might imperil the industry, such as limiting the deductibility of the debt that is often piled on corporate acquisitions, seem doubtful.
Even without Congress, Biden’s regulators are expected to step up scrutiny of private equity and could issue new rules. Though some Trump holdovers could slow the process, the industry is likely to be reviewed by the
Lastly, Democrats in the House may turn to a “name-and-shame” agenda, by holding hearings and conducting investigations to highlight issues like bankruptcies of portfolio companies or the industry’s more controversial investments in health-care and private prisons.
A Reprieve on Taxes?
Trump’s 2017 tax cuts have been particularly beneficial for banks. Their effective rates used to be higher than those paid by non-financial companies and had more room to fall.
Biden has proposed an increase to the corporate rate that could result in the six biggest U.S. banks paying an additional $9 billion in 2021, and much more in future years as their earnings recover from the pandemic. But it’s hard to see Republican senators supporting a tax hike.
A Reinvigorated CFPB?
Wall Street has already ceded the
Banks are hoping that if a more liberal appointee is confirmed to run the CFPB, Biden may gain flexibility to pick moderates to take the helms of the Treasury Department, the Fed and the SEC.
Still, the CFPB won’t have a light-touch agenda like it did under Trump, when the agency’s budget was closely scrutinized and it focused on smaller payday lenders, mortgage firms and auto loan companies. Big banks are likely to get more attention, along with new rules and sanctions. That includes an expected effort to rein in overdraft fees – which bring lenders some $11 billion annually.
A Muscle-Flexing FSOC?
In the Trump era, FSOC strayed from its envisioned role of trying to spot risks that could cause another financial panic, focusing instead on ways to cut rules. Most think that will quickly change under Biden.
Its powers include the authority to designate a company “systemically important,” which puts firms under heightened Fed supervision. The council can also do the same for products or practices it believes are too risky, such as money market funds or securities lending. In addition, FSOC sets key oversight priorities. Biden’s regulators will be able to fill six of the 10 voting seats. Still, four Trump appointees, including the Fed chairman, will retain their jobs and can stay on for at least a year -- meaning any change may not come fast.
A Tougher SEC?
No watchdog matters more to Wall Street’s vaunted investment banks than the SEC, which will be at the center of the fight between progressive Democrats and moderates over the direction of financial regulation in the next four years.
Liberals would like to see former SEC Commissioner
Pain for Regional Banks?
Regional lenders such as
(Updates with transition officials in seventh paragraph.)
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