The Names to Watch, Rules that Will be Dialed Back, and Industry Goals that Could be Prioritized
State of Play
Donald Trump and his team are expected to do away with numerous financial rules that were adopted or proposed during the Biden administration. At the same time, with agencies soon to be led by more business-friendly regulators, there is a greater opportunity for the industry to push some of its top policy goals. The environment puts into focus the importance of developing robust communications strategies that reach Washington's new decision-makers – and surrounding stakeholders – in intentional and targeted ways.
Key policy areas to watch include:
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Banking Rules |
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The Future of Fannie Mae and Freddie Mac |
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SEC Oversight of Crypto and Private Funds |
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Retirement Accounts |
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ESG Policies Crackdown |
Key Agency Officials Likely Moving On
Names to Watch
Banking Oversight
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BASEL Banks are poised to see a sharp reversal from Biden’s banking rules. Fed Vice Chair for Supervision Michael Barr, who has been the lead regulator in charge of new bank capital requirements, could be removed. But even if Barr sticks around a while, new Trump-appointed heads at the FDIC and OCC could block implementation of Basel III Endgame. |
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BANK FEES CFPB Director Rohit Chopra is likely to be among the first financial regulators shown the door. That will pave the way for a new agency chief, potentially with the help of Republican lawmakers, to rescind rules capping credit card late fees, non-sufficient funds fees, and overdraft fees. |
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BANK M&A The Department of Justice, OCC, and FDIC will likely reverse guidance on bank M&A, facilitating more deals, especially those involving regional banks. For example, Capital One share’s have gained 12% since the election and Discover is up 20% in a clear sign that investors expect regulators to quickly approve the banks’ planned merger. Once the deal goes through—or even before—other banks will likely follow suit by proposing their own transactions |
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NATIONAL BANK RULES The incoming OCC chief could be more deferential to state regulators on new state laws governing how nationally-chartered banks may operate. However, some of this will be dictated by court interpretations of the Dodd-Frank Act and the Barnett Bank case. A flexible OCC would allow states like Florida to implement new laws compelling banks to disclose reasoning for closing or freezing accounts for politically sensitive groups such as oil and gas companies, firearm retailers, and religious organizations. The flip side, however, is that states like California may seek to cut off banking to such industries. |
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DEBIT CARDS If Trump utilizes his authority to put pressure on the Federal Reserve, it could impact not just monetary policy, but also regulatory initiatives. A Fed proposal to lower the cap on debit card interchange fees by amending Regulation II could be reevaluated. This is especially likely since the Corner Post Supreme Court case raises more questions than answers with regard to how Regulation II is currently being implemented. |
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CREDIT CARDS Trump mused during his campaign that he would be open to temporarily capping credit card interest rates at 10%. But such a move would almost certainly be challenged through litigation alleging it’s arbitrary and capricious under the Administrative Procedure Act. |
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INVESTMENTS IN BANKS The FDIC will likely continue its scrutiny of large asset management firms’ investments in banks. That’s largely because Republicans are skeptical of some big asset managers’ ESG policies. As a result, asset managers could be compelled to divest stakes in banks that exceed 10%. |
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FEDERAL RESERVE OVERSIGHT OF NONBANKS The Financial Stability Oversight Council's (FSOC) guidance that can apply Federal Reserve oversight to nonbanks (e.g., asset managers, crypto firms, and insurance companies) will be amended. The changes will likely require the inclusion of a cost-benefit analysis and comply with the MetLife v. FSOC case. |
Future of Fannie Mae and Freddie Mac
Trump’s win is certain to reignite speculation that mortgage giants Fannie Mae and Freddie Mac will be released from government control.
Why It Might Happen?
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It would net the federal government some $150 bln to $200 bln from selling its investments in Fannie and Freddie, money that could be used – with Congress’ blessing – to address housing affordability by increasing supply.
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Mortgage lending would likely increase because Fannie and Freddie would have more motivation to innovate as private companies focused on profits.
Why It Might Not Happen?
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Big mortgage bond investors would likely lobby aggressively against the conservatorships ending. They were deeply opposed during Trump’s first administration because as long as Fannie and Freddie remain in federal control, the government would cover investors’ losses on the companies’ mortgage bonds.
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There’s potentially a big risk to taxpayers. It’s widely perceived that Fannie and Freddie don’t have enough capital to endure the steep losses they would face in the event of a severe housing crisis, akin to what happened in 2008. As a result, some lawmakers and housing experts are likely to argue that they shouldn’t be released.
Who Wins?
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Hedge funds and other investors who bought Fannie and Freddie shares at discount prices during the conservatorships.
SEC Enforcement
High-profile lawsuits and investigations initiated under Chair Gary Gensler are likely to be dropped, especially those involving cryptocurrencies. The new administration is expected to be much more friendly to crypto. But the SEC’s enforcement program never goes dormant no matter which party is in the White House, so expect a steady pace of cases during Trump’s presidency.
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The SEC could walk away from crypto lawsuits by stating there is too much legal and regulatory uncertainty about whether digital assets are securities. On such grounds, the SEC could ask judges to stay these cases.
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Even under Republicans, the SEC has routinely touted the number of cases it brings each year and how much money it has returned to harmed investors.
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Considering Republicans’ dislike of ESG, a likely target could be so-called greenwashing, in which financial firms are accused of misleading investors about how green or sustainable their products are.
SEC Rules
Gensler frustrated the business community with a far-reaching rules agenda, much of which will now be on the chopping block. There is also industry hope for new policies, such as making it easier for firms to raise money from a wider swath of investors and reversing the SEC’s tough stance on crypto.
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Some of Gensler’s most contentious regulations, including ones targeting hedge funds and his climate disclosure rule, may not require much action by the incoming SEC chairman because they are already being challenged in court. The new leadership could say such rules are legally flawed and need to be re-proposed, giving the SEC an out from defending itself against industry lawsuits.
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On crypto, the SEC could heed industry demands that the agency write rules recognizing how digital assets are different from traditional securities like stocks. But some say Congress needs to pass legislation to settle once and for all which tokens are securities overseen by the SEC and which are commodities regulated by the CFTC. One near certainty is that the SEC will rescind what’s known as Staff Accounting Bulletin 121, controversial guidance that the agency issued in 2022 that has made banks highly reluctant to take on crypto firms as customers.
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Look for financial firms to make the case that the SEC should scrap its accredited investor standard, which bars people from investing in private companies unless they meet certain net worth thresholds. It could be replaced with different criteria, such as a requirement that investors obtain a certification that demonstrates financial competency.
Retirement Accounts
Possible Labor Department Rule: There is hope on Wall Street that the Labor Department will give 401(k) plans the green light to invest in private equity firms and hedge funds, allowing those industries to tap the trillions of dollars held in U.S. retirement accounts.
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In Trump’s first term, DOL issued guidance that effectively opened 401(k) plans up to alternative investments. But retirement plan sponsors didn’t take advantage because they feared regulatory guidance wasn’t strong enough to protect them from lawsuits over the higher fees charged by private funds.
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Trump’s DOL could potentially fix the problem by adopting a formal rule.
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A Trump DOL could reverse Biden’s rule allowing consideration of ESG for investing money in 401(k) plans. The courts could also halt DOL’s rule expanding a fiduciary duty standard of care to insurance agents and other broker-dealer activities.
ESG Policies Crackdown
Biden-era rules and guidance that encouraged, or compelled, businesses to identify and mitigate climate-related risks will get a fresh look with Trump in the White House.
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ESG Funds – Gensler’s SEC issued rules governing how investment companies could advertise themselves as ESG funds. The rule was issued to prevent greenwashing. Under Trump, the SEC is expected to slightly alter the rules, but overall, eliminating greenwashing is supported by both Democrats and Republicans.
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SLB 14L – The SEC's Staff Legal Bulletin No. 14L will likely be rescinded. This document makes it easier for investors to attach ESG-related shareholder resolutions to a company's proxy statement.
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Bank Climate Guidance – The Fed, OCC, and FDIC will likely rescind interagency guidance that urged banks to identify and mitigate material climate-related risks.
Check List of Potential Tactics
1. Ensure you are closely monitoring the progression of evolving policy initiatives within your issues management function.
2. Engage in stakeholder mapping to identify top decision-makers around policies, your opponents and your champions.
3. Leverage third parties to validate your positions, produce new research and disseminate thought leadership.
4. Align your communications and government relations strategies to promote your regulatory objectives and neutralize adverse policies, including through targeted digital marketing tactics.
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