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Axios Markets Editor-in-Chief Dion Rabouin provides insight into the winners and losers in the “Biden Market”.
WASHINGTON – After the 2008 financial crisis, regulatory reform efforts sought to make the system more secure. This time the aim will be to make it fairer.
In line with President Biden’s goal of helping minorities and low- and moderate-income people – the groups hardest hit by the coronavirus-induced downturn – financial regulators should focus on racial equity by focusing on consumer protection and expanding access to financial services.
This would mark a departure from the last time Democrats controlled the White House and Congress at the start of the Obama administration. Early efforts then focused on tackling the crisis, followed by an effort to ensure this didn’t happen again with the Dodd-Frank Act of 2010, the most radical financial legislation in a generation.
“Obama has been looking at how to stabilize the financial system,” said Karen Petrou, head of Federal Financial Analytics, a regulatory consulting firm. Biden wonders, ‘How do you make the banking system fair? “It’s very different.”
President Joe Biden signs a series of health care executive orders 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 result in stricter rules for payday lenders – who charge high interest rates on short-term loans – and stricter enforcement of fair loan requirements, an official said. ‘administration. Biden’s team will also work to create a government-backed consumer credit company as an alternative to companies that create credit reports, the official said.
Mr Biden’s choices for key regulatory posts underscore his desire to protect consumers from what some Democrats see as predatory behavior by financial firms.
Rohit Chopra, currently a member of the Federal Trade Commission, is the candidate for the head of the Consumer Financial Protection Bureau. Michael Barr, a former Treasury Department official who helped develop Dodd-Frank and create the CFPB, would be the best candidate for the head of the Office of the Comptroller of the Currency, which oversees national banks such as JPMorgan Chase & Co . and Bank of America Corp.
“While Trump-era regulators weren’t blind to areas like consumer protection, they weren’t high on their list of priorities,” said Daniel Stipano, former senior lawyer at Office of the Comptroller of the Currency. “They’re going to be back at the top of the list now.”
At the FTC, Chopra has repeatedly called for bolder enforcement action. In 2019, he and another Democratic commissioner opposed a settlement in which Facebook Inc. agreed to pay $ 5 billion following an investigation into the tech giant’s privacy missteps, claiming that it was not difficult enough.
Financial regulators should focus on racial equity by focusing on protecting consumers and expanding access to financial services. (AP / file photo)
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Mr Chopra is seen as likely to step up law enforcement measures at CFPB, with an emphasis on higher financial penalties and crackdown on repeat offenders. Stocks fell sharply at the start of the Trump administration before rising again last year.
He may also revisit a provision, repealed under the Trump administration, requiring so-called payday lenders to verify borrower income to ensure they can afford to pay off short-term, high-interest loans. It is also expected to strengthen the power of the office branch focused on fair lending.
Republicans in Congress and bankers, who have criticized the CFPB as an instrument to overtake government, are wary of the prospect of another swing of the regulatory pendulum.
“The banking industry needs years of written regulations, not election cycles,” said Richard Hunt, president and CEO of the Consumer Bankers Association. “The more regulators on both sides can put politics aside, write regulations with input from all parties, and explain their positions, the more Americans can benefit from a well-regulated banking industry.”
Consumer advocates are counting on the Biden administration to ease lending standards that have tightened during the pandemic, which they say has disproportionately hurt minorities who tend to have lower and lower credit scores cash for down payments, said Mike Calhoun, president of the Center for Responsible Lending. .
President Joe Biden’s team will also work to create a government-backed consumer credit company as an alternative to businesses that create credit reports. (AP Photo / Evan Vucci)
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The Biden administration’s focus on racial equity also means banks will likely be required to lend and invest more in low- and middle-income communities under revised rules in the Community Reinvestment Act. The OCC and other regulators can block mergers and new branches if banks do not meet these requirements.
Banks are unlikely to see further relaxation of the rules. Under the Trump administration, banks have seen some Dodd-Frank requirements lowered thanks to legislation that raised a key regulatory threshold at which large companies are subject to tighter rules.
On the other hand, Treasury Secretary Janet Yellen could take action to reverse Trump’s administration changes that made it more difficult to subject non-bank financial firms, such as Wall Street money managers, to scrutiny. increased.
On climate change, Yellen could work with other regulators to demand that banks better assess the risks posed by the impact of climate change.
“I think we need to seriously consider assessing the risk to the financial system of climate change,” Ms. Yellen told a Senate panel this month.
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