By: Douglas J. Elliott
This piece was first published on October 27, 2020. Our follow up November report on the Biden Administration can be found here.
November’s election will substantially affect financial regulation. In this report, Douglas J. Elliott examines the likely impacts if former Vice President Joe Biden wins the election.
Financial regulation is unlikely to be one of the top priorities for a Joe Biden presidency. Covid-19, the economic recovery, healthcare, social justice, the climate transition, and troubled foreign relations will already more than occupy the new President’s attention.
Major legislation in this area is therefore improbable. Big legislation almost always takes a major push from the Administration, which appears unlikely unless a large problem develops that creates a bipartisan consensus for action. Legislation will be even less likely if the Democrats fail to get a majority in the Senate or have only a vote or two to spare in that body. (Fivethirtyeight.com’s average forecast currently is for 51 Democrats and 49 Republicans in the Senate, with a reasonable probability of being as much as three seats higher or lower for the Democrats.)
But, regulators can do a great deal without new legislation. Capital and liquidity requirements, resolution and recovery planning, risk management procedures, disclosure requirements, and many other areas offer regulators and supervisors great leeway to mandate changes.
Who is chosen for the key positions will matter. Any Democratic appointees will share certain priorities, but there will be important differences on other potential initiatives and in how the key priorities are executed. The shape of the new team is unclear at this point.
Most changes will take time. New regulators will not be in place for some time and then need to settle in; have their staffs initiate the analysis required to back up rule changes; put out proposed rules and receive comments; make any refinements; issue the final rules; and then wait for them to take effect.
The Biden team has not issued detailed financial regulatory proposals, but we do have a sense of their priorities. These are likely to include:
- Tougher regulation of the largest banks
- Climate transition risk management and disclosure requirements
- Structural changes to retail banking through a greater government role
- A social justice package
- Higher taxes for large banks and Wall Street
- Implementation of Basel IV and potential further changes to capital requirements
Biden appointees will also influence global regulatory initiatives. The US has a strong influence on regulatory standards that come out of the Basel-based bodies. Federal Reserve, Vice Chair for Supervision, Randal K. Quarles, for example, is the current Chair of the Financial Stability Board (FSB).
Douglas Elliott is an Oliver Wyman partner focused on the intersection of Finance and public policy, particularly financial regulation. Prior to his current position, he was a scholar at the Brookings Institution and a Visiting Scholar at the IMF. He began his career with two decades as an investment banker, primarily at JP Morgan. He has written extensively on capital standards for the IMF, Brookings, and Oliver Wyman.