July 2024 / MARKETS & ECONOMY
How the U.S. election could impact the financials sector
Next president will determine whether financial regulators will mount up or stand down
Key Insights
- Financial regulators would likely be more proactive and involved under a Democratic president than in a Republican administration.
- Policy differences could make a difference in bank mergers, banks’ capital requirements, and the regulation of consumer finance and the nonbank financial system.
- The economy’s health and the outlook for inflation and interest rates are likely to be more important for financials’ performance over the next presidential term.
President Joe Biden’s decision to drop out of the election introduces another element of uncertainty to the race.
The situation is evolving quickly. However, the key issues and policy differences should remain the same.
No matter the Democratic candidate, the outcome of the U.S. presidential election is likely to influence the intensity of the financial regulatory environment. Developments on this front could have important implications for traditional banks as well as for the insurance, asset management, and credit scoring industries.
Push for stronger regulation would continue with a Democrat in the White House
Heightened scrutiny, increased intervention, and a push to expand oversight of nonbank financial companies have characterized the Biden administration’s approach to regulating and supervising the sector.
Notably, financial regulators took a stronger hand even before the failures of Silicon Valley Bank and Signature Bank in March 2023.
A different Democratic candidate would create some uncertainty about the details, but financial regulators would likely be more proactive and involved under a Democratic president than in a Republican administration.
A Trump win could ease regulatory pressure on financials
In contrast, deregulation would likely be a key pillar of former President Donald Trump’s domestic agenda if he were to win the presidency.
What could that mean for the financials sector?
A leadership changeover at key federal agencies could bring a lighter touch to financial regulation and supervision. It would also open the door to halting, reversing, or weakening policies advanced by the Biden administration. Rules that have been proposed but not yet finalized would likely be most at risk.
Where the election outcome could make a difference:
Context is key
The U.S. presidential election is likely to have important implications for the intensity of financial regulation. However, government policy is only part of the equation.
The health of the overarching economy, which influences loan demand and credit risk, and the outlook for inflation and interest rates will exert even greater influence on the financials sector’s performance over the next presidential term.
IMPORTANT INFORMATION
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
Gilad Fortgang is an associate analyst covering Washington and regulatory research in the T. Rowe Price Investment Management U.S. Equity Division.
