Axion’s market editor, Dion Rabouin, provides insight into the winners and losers in the ‘Biden Market’.
WASHINGTON – Following the 2008 financial crisis, regulatory reform efforts sought to make the system safer. This time, the goal will be to make it fairer.
In line with President Biden’s focus on helping minorities and people on low and moderate incomes – groups worst affected by the downturn caused by coronavirus – financial regulators are expected to emphasize racial equity as they focus on consumer protection and the expansion of access to financial services.
That would be a departure from the last time Democrats controlled the White House and Congress at the beginning of the Obama administration. Early efforts were then made to combat the crisis, followed by pressure to ensure that it would never happen again with the Dodd-Frank Act of 2010, the most comprehensive financial legislation in a generation.
“Obama has been looking at how to make the financial system stable,” said Karen Petrou, head of Federal Financial Analytics, a consulting firm. “Biden looks at ‘How do we make the banking system fair?’ It’s very different. ‘
President Joe Biden signs a series of executive orders on health care in the Oval Office of the White House, Thursday, January 28, 2021, in Washington. (AP Photo / Evan Vucci)
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In practice, this will be exacerbated by strict rules for payday lenders – which charge high interest rates on short-term loans – and a stronger application of the requirements for fair loans, an administration official said. The official will also insist on setting up a government-backed consumer credit business as an alternative to the businesses that compile credit reports.
The choice of mr. Praying for the best regulatory positions underscores its pressure to protect consumers from what some Democrats see as predatory behavior by financial corporations.
Rohit Chopra, currently a member of the Federal Trade Commission, has been nominated as head of the Bureau for the Protection of Financial Consumers. Michael Barr, a former Treasury official who helped create Dodd-Frank and set up the CFPB, is said to be the best candidate to head the Office of the Currency Controller, which oversees national banks such as JPMorgan Chase & Co. and Bank. of America Corp.
“While the Trump-era regulators were not blind to areas such as consumer protection, they were not at the top of their list of priorities,” said Daniel Stipano, a former top advocate at the Office of Currency Controller. “They will now be at the top of the list again.”
At the FTC, Mr. Chopra repeatedly advocated for stronger enforcement actions. In 2019, he and another Democratic commissioner filed an objection to a settlement in which Facebook Inc. agreed to pay $ 5 billion after an investigation into the technology giant’s privacy mistake, claiming it was not difficult enough.
Financial regulators are expected to emphasize racial equity as they focus on protecting consumers and expanding access to financial services. (AP / file photo)
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Mr. Chopra is considered likely to intensify enforcement actions at the CFPB, focusing on higher fines and a repression of repeat offenders. Actions declined sharply early in the Trump administration before rising again last year.
He could also repeal a provision, under the Trump administration, that requires so-called payday lenders to verify lenders’ income to ensure they can afford to repay high-term loans with high interest rates. He is also expected to increase the power of the bureau arm, which is focused on equitable lending.
Republicans in Congress and bankers, who have criticized the CFPB as an instrument of government overthrow, are wary of the prospect of another swing of the regulatory pendulum.
“The banking industry has needed regulations for years, not election cycles,” said Richard Hunt, president and CEO of the Consumer Bankers Association. “The more regulators from both parties can push politics aside, draft regulations with input from all parties and explain their views, the more Americans can benefit from a well-regulated banking industry.”
Consumer advocates are looking to the Biden government to ease the borrowing standards that were tightened during the pandemic, which they say has unduly harmed minorities who have extraordinarily fewer credit values and less cash for installments, says Mike Calhoun, president of the Center for responsible loans. .
President Joe Biden’s team will also insist on setting up a government – backed consumer credit firm as an alternative to the businesses that compile credit reports. (AP Photo / Evan Vucci)
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The Biden administration’s focus on racial equity also means that banks are likely to be expected to borrow more and invest in low- and middle-income communities under revised rules for the Community Reinvestment Act. The OCC and other regulators could block mergers and new branches if banks do not meet these requirements.
Banks are unlikely to see further easing of rules. During the Trump administration, banks saw that some of Dodd-Frank’s requirements were scaled down by legislation that raises an important regulatory threshold to which larger businesses are subject to stricter rules.
On the other hand, Treasury Secretary Janet Yellen may decide to undo Trump administration changes, making it more difficult to subject non-banking companies, such as Wall Street money managers, to stricter supervision.
As far as climate change is concerned, Ms. Yellen is working with other regulators to require banks to better assess the risks posed by climate change.
“I think we need to look seriously at assessing the risk of climate change for the financial system,” Yellen told a Senate panel this month.