Bankers are holding their breath over Biden
WASHINGTON — While bankers are relieved that two outspoken Wall Street critics have abandoned their White House bids and Democratic voters have coalesced around the more moderate Joe Biden, industry watchers still have questions about how the presumptive nominee would govern.
Executives, bank lobbyists and others largely agree that the industry appears to have dodged a bullet after the former vice president was able to halt the early-primary momentum of Sen. Bernie Sanders, I-Vt., forcing both Sanders and his fellow progressive Sen. Elizabeth Warren, D-Mass., to drop out.
But they still worry Biden, if elected, could be pushed to the left by progressive voters on financial policy issues and appoint leaders of the bank regulators who would support stricter rules.
“I think there was definitely a calm that rushed over Democrats in New York City and within the institutions themselves when Bernie didn’t get it, just because he doesn’t represent their kind of policy,” said an industry source who spoke on the condition of anonymity. “Those of us who have watched since the Obama administration, and certainly this administration, have a concern about who is going to actually control who the nominees for the regulatory agencies are.”
Biden already moved to the left on bankruptcy reform after becoming the clear front-runner, supporting policies championed by Warren. If he were to win the White House, his administration potentially would need to address financial issues tied to the coronavirus pandemic. And depending on the outcome of a Supreme Court case involving the Consumer Financial Protection Bureau, Biden could be in position to appoint a Democratic head of that agency.
Progressive groups including Justice Democrats, NextGen America and Alliance for Youth Action recently urged Biden in a letter to “pledge to appoint zero current or former Wall Street executives or corporate lobbyists” to adviser roles, or in the event that he wins election, his transition team or cabinet. They recommended progressive members for his potential transition team, including House Financial Services Committee members Katie Porter, D-Calif., and Ayanna Pressley, D-Mass.
“The reticent progressives in the Democratic party are going to make it so that Biden has to constantly and repeatedly bow to their concerns and focus on their issues, which suggests that we should be prepared for the big-bank bashing,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading.
Biden recently unloaded on the big banks in an interview with Politico, criticizing them for focusing on large corporations in providing coronavirus rescue loans through the Paycheck Protection Program.
“We knew from the beginning that the big banks don’t like lending to small businesses,” Biden told Politico April 25. “This is the second time we’ve bailed their asses out."
Still, Biden's record as a senator suggests he would take a moderate approach to the banking industry and the economy.
As a Democratic senator from Delaware sitting on the Judiciary Committee, Biden advocated for a 2005 industry-backed bill aimed at preventing debtors from abusing the bankruptcy system. His position put him at odds with Warren, then a Harvard law professor, who warned it would hurt indebted consumers.
Biden also has a history of accepting cash from the credit card industry. His single largest contributor when he was a senator was the credit card issuer MBNA Corp., which was later folded into Bank of America.
“Biden is more industry-friendly, that’s a fact,” Boltansky said. “Anyone who looks at his record, especially the bankruptcy bill, will come to the conclusion that Biden is demonstrably better for the banking industry than Sanders.”
Biden has already accepted more than $42 million from the finance, insurance and real estate sector, according to the Center for Responsive Politics. That total outdoes even President Trump, who has received just under $17 million from the sector.
The former vice president also recently riled up progressives after it was reported he was being advised by Larry Summers, who was Treasury secretary in the late 1990s when President Bill Clinton signed the Gramm-Leach-Bliley Act. The law removed the barriers between investment and retail banking established under Glass-Steagall.
“The fact that he is talking to Larry Summers suggests that this is going to be a pretty mainstream, Clintonian type of campaign and presidency, if it’s successful,” said Brian Gardner, director of Washington Research at Keefe, Bruyette & Woods. “It doesn’t signal a shift to the left. If you’re talking to Larry Summers, you’re probably staying pretty close to the center … in terms of economic policy and banking regulation.”
However, Justice Democrats has created a petition calling on Biden to remove Summers as an economic adviser.
“The question is which Biden are we going to get?" said Ed Mills, policy analyst with Raymond James. "It is clear that the Democratic Party has pushed their platform further to the left and has required any national candidate to support robust consumer protections and bank regulations. And that in many ways is in contrast to Biden’s career, where he was seen as someone who supported the industry, especially given the large concentration of banks and credit card companies within the state he represented in the Senate.”
Next year, both Congress and the administration of either President Trump, if he is reelected, or Biden would potentially face questions on financial policy stemming from the coronavirus pandemic. Among them are whether several temporary regulatory relief measures enacted in the Coronavirus Aid, Relief, and Economic Security Act are extended.
For example, the law gave banks the option to delay compliance with an unpopular accounting standard known as the Current Expected Credit Losses model until Dec. 31, or when the national public health emergency is declared over. The CARES Act also temporarily lowered the "community bank leverage ratio" to 8%. Banks are hoping to make those changes permanent, but Biden has not taken a stance on either issue.
But the pandemic also has some analysts predicting that Biden’s campaign won’t pay much attention to banking issues.
“Now in the COVID-19 world, banking gets thrown down the list even further,” said Gardner. “It’s an even lower priority. The response to the crisis is going to be the preeminent issue, followed by health care, tech. … Foreign policy is going to be a huge issue. China will dominate and this just squeezes out banking even more. Anything we get on banking is going to be minimal."
Biden has shown some signs of tacking to the left on financial policy. In a March virtual town hall-style event, Biden said he supported Warren’s bankruptcy plan. The Massachusetts senator opposes means tests that require bankruptcy filers with incomes above a certain amount to file through Chapter 13 and make payments from their wages for a certain period. Warren's plan would get rid of those tests and offer consumers an array of options for repaying their debts.
"One of the things that I think Bernie and I will agree on — I've endorsed Elizabeth Warren's bankruptcy proposal," Biden said at the event.
Mills said Biden's siding with Warren on bankruptcy "helps neutralize that issue" among progressive voters in the election.
“One of the longest-running feuds between the two of them was her opposition to the last bankruptcy bill and his support of it," Mills said.
With bankers still uncertain as to how far to the left Biden will move when it comes to banking policy, observers say they will pay close attention to whom Biden appoints to his transition teams if he wins the presidency.
“Those people are going to have a lot of say in who gets entry into the administration and nomination, and they start working on the shortlist for that stuff,” the industry source said. “We are definitely going to start looking at who is going to be on those transition teams.”
Warren could play an outsize role in advising Biden on appointments to the Treasury Department, as well as regulators like the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the CFPB.
“It’s more of a question, is Elizabeth Warren going to go to Biden and say, ‘I’m not going to allow that nominee through, so you need to either put my nominees in place or you can plan on your people being blocked’?” the industry source said.
A Biden presidency could have a key regulatory position to fill out of the gate depending on how the Supreme Court rules in the case dealing with the job security of the CFPB director.
At the heart of the case, the Trump administration has supported legal efforts to give sitting presidents greater discretion to fire the head of the consumer bureau. But if the court allows that discretion, it would hand greater authority to a Democratic president to fire the current Trump-appointed CFPB director, Kathy Kraninger.
Even community bankers are concerned that Biden would pick regulators who could impose restrictions on the industry.
“He is definitely more conservative than Bernie,” said McCall Wilson, president and chief executive of the $660 million-asset Bank of Fayette County in Tennessee. "But I still worry, who would he appoint to the key positons in banking? The regulators control the tone in banking. … That’s what I worry about Biden — is who would be appoint.
"Definitely I feel better knowing it’s not Bernie, but I’m still not convinced that [Biden is] not being pulled by the left wing of the party.”
Given the current strength of the banking industry, some say traditional banks would not be a big target for a Biden administration.
Boltansky said that while the Dodd-Frank Act was signed into law when Biden was vice president, the legislation was “a product of the times.”
“Banks are incredibly more capitalized; they are not the issue now,” Boltansky said. “In a Biden administration, I would expect a pronounced focus on the nonbank sector over the banking sector. I think that what we’ve seen over the past few weeks is that leverage and illiquidity are deeply concerning factors in our economy and part of that was due to the rise of the shadow banking and nonbanking sectors since Dodd-Frank.”