It’s an understatement to say Republican presidential nominee Donald Trump’s surprise victory shook up the world Tuesday. Trump got elected promising change in Washington and made statements that portrayed a confusing mix of anti-bank and anti-regulation rhetoric. But with the House and Senate now controlled by Republicans, many industry observers are optimistic that the election will mean the appointment of more bank-friendly regulators, while the Consumer Financial Protection Bureau (CFPB) could also be weakened.
Although many economists feel Trump’s policies would be bad for the national economy, bankers by and large felt Trump would actually be good for the economy, according to a Bank Director poll in September.
“We think the main result of Donald Trump's election will be that Trump will be able to appoint regulators who are more industry friendly than regulators appointed by President Obama,’’ wrote Brian Gardner, an analyst with investment banking company Keefe, Bruyette & Woods, in a note to investors Wednesday. “The regulatory implications are more important than what might come out of Congress but are broadly positive for financials in our view.”
As far as banking regulations, the biggest thing in jeopardy may be the CFPB. President Trump will be able to appoint someone to head the agency, and a Republican-led Congress may make a move to gut or end it. That’s not to say such a move would be easy to do, but if Congressional elections in 2018 remove even more Democrats from office, it’s a possibility. The existence and approach of the CFPB has been a thorn in the side of many.
The Dodd-Frank Act
It’s unlikely the Dodd-Frank Act will be gutted entirely even with a Republican-controlled Congress. Democrats still will have at least 47 seats in the Senate and be able to block legislation that they don’t support, as 60 votes are needed to pass legislation in the Senate, Gardner wrote.
Even some industry lobbyists will be advocating against that, as it would create even more uncertainty. “Our industry has spent billions implementing Dodd Frank and complying with the CFPB,’’ said Richard Hunt, the president and CEO of the Consumer Bankers Association, in an interview Wednesday. “The last thing the banking industry needs is a whipsaw effect of uncertainty.”
Instead, some lobbyists are advocating for measures that would ease regulation on community banks, especially. The Independent Community Bankers of America “believes the unified Republican control of the executive and legislative branches presents a unique opportunity for enacting significant community bank regulatory relief and fully intends to leverage this opportunity for the benefit of community banks, their customers, and the communities they serve,” the group wrote in a memo to members and published on its website.
Wall Street Reform
The Republican Party platform this year, which former Trump campaign manager Paul Manafort said was in fact Trump’s platform, supported the return of the Glass-Steagall Act, which forbid banks from having both commercial and investment banking businesses. It was a surprising move, as the other person supporting the return of Glass-Steagall was Massachusetts Democratic Senator Elizabeth Warren. But few expect Trump to actually push hard for this, let alone be successful.
Aite Group senior analyst Javier Paz, who covers assets managers, wrote in a note that there was talk of President Trump leaning hard on Wall Street, but “we believe this was a tactical shift to keep Hillary Clinton from outflanking him on the topic of Wall Street reform. Time will tell, but we highly doubt new pieces of legislation building on what Dodd-Frank started will be forthcoming under President Trump.”
Hunt says he counted about 35 seconds of anti-bank rhetoric during four presidential and vice presidential debates. “There is campaigning and then there’s governing,’’ he says. “This is where Speaker Ryan, McConnell and the president will get together and come up with a shared vision for what they want the first 100 days and first year to look like to show the American people that Washington can work.”
There is a lot of uncertainty about what impact a Trump presidency will have on the Federal Reserve. Trump has been critical of Fed Chairwoman Janet Yellen and the central bank’s policies. He has said the Fed has been artificially keeping rates too low but his views on the Fed have not been consistent. He will be able to appoint two members to the Federal Reserve after he takes office, and Yellen’s term ends in January 2018, according to Gardner. Although the Fed was widely expected to raise rates in December, some predict that won’t happen now, as uncertainty about the markets could lead the Fed to delay a rate hike.