WASHINGTON — During the last Democratic administration, the financial crisis and subsequent regulatory reforms often put banks and government officials on opposing ends of policy debates.
But over a decade later, as President Biden tries to stabilize the economy amid the sustained pandemic, bank executives and Democrats in power seem to be in unfamiliar territory: on the same team.
The administration and financial services leaders — along with other business sectors — have signaled they are aligned in support of Biden's first big policy goal: a $1.9 trillion stimulus plan to aid consumers and businesses still reeling from the economic effects of COVID-19.
The alliance could make it more challenging for GOP lawmakers to oppose the stimulus package over budget concerns, while also presenting banks with an opportunity to engage the administration about industry priorities and concerns about burdensome new rules.
“The fact is, unlike 2008 and 2010, the banks weren't the cause of this economic problem,” said Greg Lyons, a partner at Debevoise & Plimpton. “The banks are healthy enough where the government is using [them] as a tool to help bridge between the government and businesses and the citizens with respect to financial relief and financial benefits.”
Treasury Secretary Janet Yellen has worked swiftly to build a broad-based coalition of business and community leaders as Democrats prepare to advance Biden's American Rescue Plan through Congress, likely without substantial Republican support. Her efforts resemble similar steps she took to engage with the industry behind the scenes as Federal Reserve chair under President Obama.
“The Biden administration has been reaching out pretty extensively to the business and banking communities for their support of the president’s relief plan,” said Mark Chorazak, a partner at Shearman & Sterling.
Though bank executives are cautious about showing explicit backing for any government policy, some recent statements suggest industry support for the administration's going big on stimulus.
“Let’s not forget that we have an unemployment rate of 6% plus, we have a group of people who need the support of the government, need continued unemployment benefits, need [this] type of help to continue to make it to the other side of the river,” said Bank of America Corp. CEO Brian Moynihan in a Jan. 26 interview on CNBC.
Meanwhile, JPMorgan Chase CEO Jamie Dimon was among the executives at a Feb. 9 meeting at the White House with Biden and Yellen to discuss the stimulus plan. “We had a constructive and detailed conversation that covered a lot of ground — the urgent struggles of so many Americans, a path to a sustainable and equitable economic recovery, and the future of American competitiveness," Dimon said in a statement following the meeting.
Banks likely do not support all elements of Biden's plan, which calls for $1,400 direct payments to individuals, a boost in unemployment benefits, $15 billion in grants for small businesses, support for state and local governments, and an increase in the minimum wage to $15 an hour. But financial institutions generally stand to benefit from liquidity injections into the economy, said Daniel Bachman, an economist at Deloitte.
“What’s good for America is good for banks,” he said. “The relief bill will keep people from defaulting on mortgages, the money for [the Paycheck Protection Program] will keep businesses that might have outstanding loans from failing, and so on.”
David Solomon, chairman and CEO of Goldman Sachs, said in a Jan. 25 panel discussion that continued government support is necessary with such uncertainty about when economic activity will return to normal.
“I think one thing is absolutely clear: we do need some more fiscal stimulus to continue to bridge the gap, to continue to allow us to move through this tunnel and get to the other side,” he said on the panel hosted by the World Economic Forum.
The Biden team has largely viewed banks and financial institutions as allies in ushering the economy toward recovery, agreed Isaac Boltansky, director of policy research at Compass Point, particularly in distributing economic impact payments and small-business loans.
“It has been clear that Democrats on both ends of Pennsylvania Avenue want a far sharper recovery than we saw coming out of the great financial crisis,” he said. “With the goal of a stronger recovery, and banks increasingly seen as potential partners rather than pariahs, the Biden administration’s engagement makes sense.”
Both the Biden team and large banks likely stand to gain from working together to push for the passage of another stimulus package, experts say. Not only would banks be able to regain confidence in the ability of their customers to repay loans, but financial institutions advocating for stimulus would also be able to say they were aligned with his administration’s chief priority from the start.
This could potentially help industry lobbyists fend off progressive policy reforms
“[Banks] know that a Democratic administration is certainly going to be a little more challenging on the regulatory front than Republicans typically would be,” said a former senior Senate staffer who spoke on the condition of anonymity. “I would think some of the more involved and sophisticated institutions, they get that. Be helpful when you can, work together where you can, and there'll be some interests that align, and then there'll be some that won't.”
Yellen and the administration’s outreach to the business community has also helped make the case to the public for fiscal stimulus, despite indications that few Republicans in Congress would support a new package.
“Secretary Yellen’s immediate priority is the passage of the American Rescue Plan in order to help Americans make it to the other side of the current public health and resulting economic crisis — and be met there by a strong, growing economy,” a Treasury spokesperson told American Banker.
Although selling the stimulus package to the public and the banking industry may not change the minds of many Republican lawmakers, Yellen’s bipartisan credibility could ultimately sway votes, said Lyons.
“A lot of Republicans are simply going to be against the size of the stimulus,” he said. “But from [Yellen’s] perspective, and from the Biden administration perspective, she is hopeful her voice perhaps influences those on the fence who are inclined to defer to her because of her stature.”
Even if Democrats are forced to pass a stimulus package without any Republican votes, Yellen and the Biden team could ultimately benefit politically from drumming up public support. A
“I think that's why they feel like, okay, we'll get support from the public, we'll get support from local officials, including local Republican officials, and we'll get support from the business community, and in some ways, they're isolating Capitol Hill Republicans that way,” said the former Senate staffer.
Yellen has likely been able to leverage the relationships she established with the banking and business communities during her time as chair of the Fed, said Ian Katz, a director at Capital Alpha Partners.
“You could go back and look at reports from her calendar when she was the Fed chair,” he said. “She makes a point of meeting with and talking with, as many people from all sides as she can. That was something she emphasized at the Fed and that is something that she seems to be doing now.”
