- Key insight: A dramatic swing toward progressive rhetoric could mean both parties embrace more populist ideology.
- What's at stake: Credit card interest rate cap and Federal Reserve interest on reserve balances have been on the populist Republican wishlist in the new Congress.
- Forward look: Affordability issues will continue to be key in the midterm campaigns next
year.
WASHINGTON — Voters moved sharply left in yesterday's elections, which spanned from California to New York, and ushered candidates into office that emphasized pocketbook affordability issues and discontent with the Trump administration.
For bankers, local, off-cycle elections typically have a limited direct impact on policy or bottom lines. But the marked and consistent swing toward Democrats and progressive economic rhetoric could signal a pivot toward more populist policies in the near term and a bellwether for the 2026 midterm election in the longer term.
Former House Financial Services Committee Chairman Patrick McHenry, the Republican from North Carolina who now works as a financial services lobbyist, said in New York on Wednesday that the election results were "significant." Particularly, he said, the election of Zohran Mamdani, the Democratic Socialist candidate who won the New York City mayoral election with a campaign centered on the affordability of life in the city, is telling.
"The interesting takeaway from this is … it was the same issue set that President Trump used to beat Kamala Harris in the last election: affordability," McHenry said at The Clearing House conference in New York. "One year in, the President's economic policy was on the ballot and that was not good for Republicans yesterday. So the question now is: for the midterms, where is the economy? Is it stronger? Do people feel more prosperous than on Election Day 2024?"
Todd Phillips, a bank law professor at Georgia State University, said yesterday's election showed that voters care deeply about the economy and pocketbook issues. For lawmakers, that could make passing bank-favored legislation — like lowering capital requirements or easing compliance burdens — more difficult.
"Everyone, including legislators, are going to be looking over their shoulder," Phillips said. "I think we're going to continue to see the banking agencies do what the banking agencies are going to do — I don't really think that's going to be shaped. I think that this is a message to Congress."
It's still too early to say if this energy will carry over to the 2026 midterm campaigns. Key banking lawmakers are on the ballot next year, including a potential comeback for former Senate Banking Committee Chairman and financial progressive Sherrod Brown, who has already launched a bid to
Jaret Seiberg, a managing director at TD Cowen, said in a note that there's risk to financials if this is interpreted as a reason for the Trump administration and Republicans to push more economically populist policies ahead of the 2026 midterms.
"The unifying election theme was the economy and the impact on voters from higher prices. It is why we expect Democrats will make the economy — rather than portraying President Trump as a threat to democracy — as the key message heading into the midterm election," he said in the note. "This may represent a risk to financials as the President may respond by embracing populist policies, including some he raised during the campaign."
This could include issues such as credit card interest rate caps, which
It could also energize attacks on the Federal Reserve's interest on reserve balances, which some Republican populists argue are giveaways to the largest banks. Those efforts have found little foothold in Congress outside of a few lawmakers,
"Trying to ban interest on reserve balances could be a way for the President to recast himself as fighting the big banks," Seiberg said. "We could even see the President tie the ability of banks to collect IORB to their adoption of interest rate caps or other policies viewed as benefiting consumers."
