WASHINGTON — Banks and credit unions have spent the past year preparing for the impact of either Donald Trump’s reelection or a victory by Joe Biden. But with the presidential race still undecided as of early Wednesday morning, the financial services industry can ponder a third scenario: continued uncertainty.
Contests in key states are still too close to call and officials in some battlegrounds have reportedly said it could take several days to report a final result. The lack of a clear winner on Election Day wasn’t surprising considering the flood of mail-in votes being counted due to the pandemic.
If a winner is announced on Wednesday or later in the week, the impact on the stock market and other financial indicators could be small. But some have considered effects of prolonged uncertainty about who the winner will be, from market volatility to a lack of any progress on needed policy reforms, such as a new round of fiscal stimulus.
“The longer the election remains unresolved, the more of that kind of volatility we are going to see,” said Dan Crowley, a partner at K&L Gates. Crowley said the immediate effect would be on traders, potentially requiring the Securities and Exchange Commission to take action, “but to the extent that all of the financial institutions are now in each others’ businesses, it’s going to affect the big banks that have large securities operations.”
Brian Gardner, chief Washington policy strategist at Stifel Financial, recalled that the 2004 election between President George W. Bush and John Kerry did not produce a clear winner on Election Day, but races in certain close states were decided and Kerry conceded by the following afternoon. Yet many commentators are projecting a longer wait in 2020.
“If we get for a day or so of some uncertainty, I don’t think it’s a big deal,” Gardner said. “We got that in 2004 with Bush versus Kerry. … I think the markets are fine with that. If there are signs that the uncertainty is going to be protracted, that it could take several days, several weeks, then you are going to start to see some kickers in the markets.”
The lack of a winner will keep bankers in suspense about who will appoint leaders at financial regulatory agencies and what policy items the White House will prioritize come January. Uncertainty about the presidential election also muddies expectations about a potential stimulus package to ease the economic burdens of the COVID-19 pandemic.
“A lot is at stake with the election and really mostly because the direction of things will change dramatically if you have a turnover of the administration or turnover in the Senate,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America. “Bankers would like to know sooner than later what the status of a lot of the rules and regulations … whether they need to adjust their budgets and their staffing, and business models and business strategies based on the outcomes of the election.”
Merski said banks would likely want to use the next few months to prepare for potential changes at the financial regulatory agencies, but that they can’t make those changes without knowing the outcome of Tuesday’s elections.
“Really a lot of business planning is done in November and December,” Merski said. “That uncertainty really would wreak havoc on your business planning, your staffing, your position on different business lines that you are involved with. That uncertainty is not a positive.”
James Lucier, managing director at Capital Alpha Partners, said that bankers and investors are hoping for Congress to
“One of the biggest things investors are looking for to result from this election is a big stimulus,” Lucier said. “If you have a Republican Senate, you’re not going to get that multitrillion-dollar stimulus.”
The outcomes of both the congressional and presidential races could also determine what kind of stimulus package financial firms could see, since observers don’t expect Congress to pass any major stimulus legislation during the lame duck session before the inauguration.
“There is an undeniable need for additional fiscal support, but the scale and scope of that is not going to be clear until we know who is running the show next year,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading. “There is understandably still a modicum of activism regarding the lame duck session, but I’m not optimistic. I think it is going to be difficult for Washington to claw its way through that fog of distrust and disdain that's going to follow this election and get something meaningful done.”
Merski said banks are not only concerned about how the election could impact a future stimulus package, but also about possible changes to agencies like the Small Business Administration that have been administering coronavirus economic relief.
“A lot of the programs that the bankers are still heavily engaged with right now, the [Paycheck Protection Program], to a lesser extent the Main Street Lending Program, these were started and implemented by Republicans in various administrative agencies … so you’d even have a change in policy if people suddenly are leaving,” Merski said. “You’d have brand new people in those political positions overseeing those major programs that were started under a Republican administration.”
Aside from the pandemic response, financial firms and businesses are eager to know how they will be regulated over the next four years. President Trump, the regulators he has appointed, and Republicans in Congress have worked to scale back rules under President Obama. If Trump wins and the GOP holds the Senate, Republicans are likely to hold a majority position on the National Credit Union Administration board for years to come.
“How is the regulatory landscape going to change?” said Gardner. “Are there some sectors that are going to see more changes than others? What’s the pace of change going to be like?”
However, Gardner indicated that he doesn’t expect major changes for banks in the short term.
“For financials, I think it will be slow for commercial banks,” Gardner said. “For capital markets, I think it will be quicker because there’s going to be a change quickly at the Securities and Exchange Commission.”
