markets & economy | september 13, 2024
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 with Kamala Harris as president than in a second Trump 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.
Gil Fortgang
Washington Associate Analyst, U.S. Equity Division of T. Rowe Price Investment Management, Inc.
The outcome of the U.S. presidential election is likely to determine 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 Harris in the White House
Heightened scrutiny, increased intervention, and a push to expand oversight of nonbank financial companies have characterized the Biden-Harris 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.
This history and Harris’s comments on the campaign trail suggest that 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.
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Where the election outcome could make a difference:
| A win by Harris: |
A win by Trump: | |
|---|---|---|
| 1. Consumer Finance | Fees: The restrictions on fees for late credit card payments and overdrawn accounts imposed by the Consumer Financial Protection Bureau (CFPB) would remain in play. However, court challenges to these rules could be an impediment. The agency’s current director has called out the rising cost of obtaining credit scores as a possible area for action. Online payments: Scrutiny of emerging payments systems could increase. For example, the Biden-Harris CFPB has sought to classify online buy-now, pay-later companies as credit card lenders. |
Regulatory restraint?: Republicans, including Donald Trump during his first presidential term, typically have advocated for a lighter touch to financial regulation. CFPB appointee is key: Could this pro-business bent change? Who the Trump administration nominates to head the CFPB will be important to watch. |
| 2. Bank Mergers and Acquisitions (M&A) | M&A restrictions: Federal financial regulators have been subjecting banking deals to greater scrutiny, especially those that would result in a combined bank with more than USD 100 billion in assets. This hawkishness could continue. | Regulatory forbearance: A changeover in agency leadership could lead to a less restrictive approach to bank mergers, although megabanks might still face constraints. |
| 3. Nonbank Oversight | Extended reach: Lending outside of traditional banks has expanded significantly,1 so efforts to increase oversight of nonbank lenders would likely continue gaining momentum. Regulators currently are focusing on collecting data and information for potential future action. These efforts could create headline risk for insurance and asset management firms that operate in these markets. | Status quo: Federal agencies would likely be disinclined to push for further regulation of the nonbank financial system, barring a crisis. |
| 4. Bank Capital Rules | Scaled-back increases in capital requirements: After strong industry pushback, regulators are reworking proposed rules for determining how larger banks assess risk and how much capital they must hold. The initial proposal would have entailed 15% to 20% capital hikes; however, reports indicate that the revised proposal moderates this requirement. | Potential relief, but timing matters: If the Biden administration fails to finalize the proposed risk framework for large banks during its term in office, that would open the door for Trump regulators to put their own stamp on the rules. |
1Arif Husain, head of Global Fixed Income and chief investment officer of the Fixed Income Division at T. Rowe Price Associates Inc., discussed this trend and its implications in the July 2024 installment of his Ahead of the Curve blog, “Shadow Banking System’ Creates a Trickier Path for the Fed.”
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 provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of July 2024 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy. Actual outcomes may differ materially from any forward‑looking statements made.
Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.
T. Rowe Price Investment Services, Inc., distributor, and T. Rowe Price Investment Management, Inc., investment adviser.
202409-3848272
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