By Lynn Woosley, Managing Director, Asurity Advisors
As a result of the November 2024 elections, the new year will bring a change in administration in the White House. In addition, the Republicans will have majorities in both the Senate and the House of Representatives. What impact will these changes in political leadership have on financial services?
Agency Leadership
First, we will see changes in leadership at federal financial services regulatory and enforcement agencies. At the FDIC and SEC, respectively, Chair Martin Gruenberg and Chair Gary Gensler have announced their departure. Leading candidates to replace Gruenberg include FDIC Vice Chair Travis Hill, while Commissioners Peirce and Uyeda are potential replacements for Gensler. Director Rohit Chopra will likely leave the CFPB. Some possible replacements for Director Chopra are Todd Zywicki (former Federal Trade Commission), Brian Johnson (former CFPB), Craig Phillips (former counselor to the Treasury Secretary), and Tom Pahl (former CFPB and FTC). Acting Comptroller Michael Hsu will be replaced at the OCC, with Jonathan Gould, former OCC Senior Deputy Comptroller and Chief Counsel, a rumored replacement. FTC Chair Lina Khan may depart, and Commissioner Melissa Holyoak or Commissioner Andrew Ferguson are top candidates to replace her. Although both Federal Reserve Chair Jerome Powell and Vice Chair for Supervision Michael Barr have pledged to remain until the end of their terms, some believe Governor Michelle Bowman will replace Governor Barr as Vice Chair for Supervision.
Other open positions, such as the Council of Economic Advisors, do not currently have rumored candidates. However, Trump recently nominated former Florida Attorney General Pam Bondi as U.S. Attorney General, former Senator Kelly Loeffler to head the Small Business Administration, and Kevin Hassett to lead the National Economic Council.
Financial Services Policy
From a policy standpoint, the Republican Party generally has a more anti-regulatory stance than the current Biden-Harris administration. This stance, especially when combined with the end of Chevron deference, heralds significant changes in the regulatory environment as well as increased industry lawsuits where there is perceived regulatory overreach. Overall, Asurity expects less aggressive rulemaking, supervision, and enforcement postures but continued focus on compliance and risk management. If the second Trump administration is consistent with the first, there will be fewer enforcement actions, and more issues will be resolved through supervisory actions. The industry can expect a temporary moratorium on new regulations. In addition, agencies may conduct a systematic review of rules proposed and promulgated under the Biden administration.
On the consumer protection front, there may be more focus on fairness broadly and less emphasis on the impact on protected classes. Specifically, a Trump administration is less likely to use expansive interpretations of unfair, deceptive, or abusive acts and practices (UDAAPs). The industry expects some moderation, but not cessation, of Department of Justice (DOJ) enforcement activity. Existing open and pending matters will probably continue, as will a continued focus on the Servicemembers Civil Relief Act (SCRA), but future fair lending enforcement cases are more likely to focus on disparate treatment than disparate impact. Financial crimes will continue to be a priority, however, given the severity of recent enforcement actions.
Even though federal agencies may reduce supervision and enforcement efforts related to consumer protection, state financial services regulators and state attorneys general are already increasing their activities. This is especially true in states known for more aggressive enforcement postures. In addition, a reduction in federal enforcement activity may prompt an increase in class action activity. Complicating matters, despite the Republican reputation for lighter regulation, Trump’s populist approach may result in common cause with Democrats on certain policy issues. One example is Trump’s campaign promise to cap credit card interest rates at 10 percent. As a senator, vice president elect JD Vance supported leveling the playing field for community and regional banks and teamed up with Senator Warren to support accountability for large bank executives.
With the interaction of conservative and populist principles, it is unclear which recent and proposed financial services regulations and guidance may be on the chopping block. Some consumer protection initiatives to watch include the proposed credit card late fees cap, overdraft and nonsufficient funds fees guidance, the CFPB’s open banking rule, the Community Reinvestment Act reform regulation, and the CFPB nonbank registry. If Basel Endgame survives, expect a reduction in capital and liquidity requirements and mandatory “tailoring” of certain prudential regulatory requirements for large banks based on size, complexity, activities, and other factors (See S.2155 EGRRCPA). Other regulatory proposals and positions at risk include climate-related risk management (other than flood insurance requirements). A Trump administration may not implement the FDIC’s proposed rules on brokered deposits, for-the-benefit-of accounts, and corporate governance, as Vice Chair Travis Hill and Director Jonathan McKernan have expressed concerns regarding some of these proposals.
The new merger and acquisition guidance from the FDIC and the OCC may not survive the change of administration. Republican administrations typically are more friendly to merger activity, and, as noted below, likely congressional banking and financial services leaders support a robust merger and acquisition market. If merger activity increases, compliance must be actively involved in due diligence to ensure potential compliance, fair lending, and redlining risks are identified prior to the merger.
Observers expect a Trump administration to offer more support for cryptocurrency and significant opposition to a Central Bank Digital Currency, especially if Governor Bowman becomes Vice Chair for Supervision. Under new leadership, we may see a retraction of OCC Interpretive Letter 1179 and corresponding FDIC and FRB guidance.
The incoming administration also should have a friendlier stance on artificial intelligence, especially where AI can lead to job creation, innovation, or a U.S. competitive advantage. Executive Order 13859 and Office of Management and Budget Memorandum M-21-06 from Trump’s first administration provide insights into potential administration approaches to artificial intelligence and machine learning. Greater support for technological innovation should lead to a friendlier stance on bank-fintech partnerships. A Trump administration may bring more opportunities for novel bank charter types, such as narrow banks, industrial loan companies, and crypto national trust banks.
Expect greater focus at the FDIC on minimizing losses to the deposit insurance fund when resolving bank failures. Republicans Vice Chair Travis Hill and Director Jonathan McKernan have both criticized the FDIC’s performance in this respect.
Housing Affordability
Housing affordability will change during the Trump administration. Forecasters expect mortgage rates to decline in 2025. The average of the Fannie Mae, Mortgage Bankers Association, National Association of Realtors, National Association of Homebuilders, and Wells Fargo forecasts of 30-year mortgage rates for year-end 2025 is 5.98 percent, compared to an average rate for a 30-fixed rate mortgage of 7.51 percent in November 2024. On the other hand, trade policy, including potential tariffs on building materials, could increase home construction costs, as could construction labor shortages stemming from stricter immigration policy. Conversely, more stringent immigration policies or increased deportations could partially offset such increases by reducing housing demand, especially with respect to affordable housing for agricultural, construction, and service workers. Efforts to end Fannie Mae’s and Freddie Mac’s conservatorships may also impact housing policy and affordability.
Tax Policy
With respect to tax policy, many observers expect the 2017 Tax Cuts and Jobs Act (TCJA) provisions, which are scheduled to expire at the end of 2025, to be extended. Preferential tax treatment of long-term capital gains and carried interest is expected to continue. In addition, Trump has discussed ending federal taxes on Social Security benefits and creating homeownership tax incentives. Another tax option under consideration is eliminating the cap on federal tax deductions for state and local taxes (SALT) paid.
Congressional Leadership Changes
The new administration will also change the congressional leadership of banking and financial services committees. Tim Scott will likely replace Sherrod Brown as the Chair of the Senate Banking Committee. Scott has recently sponsored legislation related to Small Business Administration lending, capital formation for startups, and affordable housing. For the Democrats, Elizabeth Warren, Mark Warner, and Jack Reed are possible candidates to become the committee’s ranking member.
Andy Barr, Frank Lucas, Bill Huizenga, and French Hill are seeking to Chair the House Financial Services Committee. Barr and Hill appear to be the top contenders. Any of these contenders is likely to be more business-friendly than the current leadership of the Financial Services Committee.
Andy Barr is seen as a bridge between the populist and free-market wings of the Republican Party. He has led the subcommittee overseeing the Federal Reserve’s Open Market Committee. In the past, Barr has supported restrictions on investments in China, reductions in ESG initiatives in pension plans and investment advisory, and prohibitions on banks “politicizing their lending decisions.”
French Hill is a former community bank CEO promising to “Make banking great again.” Fundamental principles in his framework include prohibiting federal regulators from instructing institutions to terminate customer accounts without a material reason for doing so, ensuring that climate stress testing is optional and not used in connection with setting capital requirements, mandating tailoring of prudential regulation and supervision, increasing transparency and fairness in bank examination processes, and streamlining bank merger and acquisition approvals. Hill also opposes the FDIC’s 2024 brokered deposit proposal.
Bill Huizenga has also taken anti-ESG positions. He sponsored H.R. 4790, the Prioritizing Economic Growth Over Woke Policies Act, and has been recognized by the National Federation of Independent Business as a “Guardian of Small Business” for his legislative support of small businesses.
Frank Lucas is the longest-serving Republican on the House Financial Services Committee and also serves on the Digital Assets, Financial Technology, and Inclusion subcommittee and the Capital Markets subcommittee. His stated positions include cutting taxes and regulations to boost economic growth. Lucas has also called for a complete revamping of Basel Endgame.
Regardless of who serves as the Chair of the House Financial Services Committee, policy will change focus to remove barriers to economic growth and innovation with additional legislative support for small business development and community and regional banking.
Conclusion
As Bob Dylan once said, “the time they are a-changin.” This is certainly true of the financial services outlook of the pending change in administration. The next four years will bring a plethora of changes in financial services policies and regulations, along with increased merger and acquisition activity. Even though the Trump administration will be more business-oriented than the Biden administration and supervise financial services with a lighter hand, financial services leaders should remember that regulators have long memories and that future administrations can easily reverse these changes. Institutions should continue to robustly manage risks and cultivate a culture of compliance, as fundamental risk management and compliance regulations have persisted through multiple administrations.
ABOUT THE AUTHOR
Lynn Woosley is a Managing Director with Asurity Advisors and a member of Case Western Reserve University’s Women in Finance Advisory Board. Lynn has more than 30 years’ of risk management experience in both financial services and regulatory environments. She is an expert in consumer protection, including fair lending, fair servicing, community reinvestment, and UDAAP. Before joining Asurity Advisors, Lynn led the fair banking practice for an advisory firm. She has also held multiple leadership positions, including Senior Vice President and Fair and Responsible Banking Officer, within the Enterprise Risk Management division of a top 10 bank. Prior to joining the private sector, Lynn served as Senior Examiner and Fair Lending Advisory Economist at the Federal Reserve Bank of Atlanta. Reach her at lwoosley@asurity.com.