Joe Biden’s transition teams suggest tougher Wall Street oversight

Donald Trump’s transition teams were filled with industry insiders, including those from Wall Street

For four years, Wall Street has benefited from the Trump administration’s push to loosen bank rules and weaken post-crisis financial regulations. President-elect Joe Biden appears ready to shift things in the opposite direction, bringing back stricter oversight of the financial industry.

The transition teams that Biden selected to review finance-related agencies are filled with proponents of stronger regulation, jarring industry groups that are suddenly fearful the moderate Democrat is preparing for an unexpected onslaught of corporate oversight. The burst of anxiety reflects the uncertainty surrounding Biden’s approach and worries of a sharp reversal from President Donald Trump’s steady rollback of regulations across the federal government.

Among those selected for the financial regulatory transition teams are Gary Gensler, who led the Commodity Futures Trading Commission during the Obama administration. He pushed through dozens of tough rules in the wake of the 2010 Dodd Frank law, including some that the Trump administration has watered down.

Also on the teams are Leandra English, a former deputy director of the Consumer Financial Protection Bureau, and Dennis Kelleher, a co-founder of Better Markets, a prominent financial reform advocacy group. English tried, unsuccessfully, to prevent Trump from installing a critic of her bureau, Mick Mulvaney, as its acting director three years ago.

The teams do not set policy or make final selections on personnel at the various agencies, but they can provide recommendations. And some members end up joining the departments they reviewed. Trump’s transition teams were filled with industry insiders, including those from Wall Street as well as individuals with a deregulatory bent, signalling the approach the agencies would take.

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The overall Biden transition team said the groups would be “responsible for understanding the operations of each agency, ensuring a smooth transfer of power.” However, their work has been delayed because of Trump’s refusal to concede defeat and grant Biden’s staff access to the departments.

While a Biden presidency may be constrained by a divided Congress, regulatory agencies wield enormous power, given their ability to write and interpret rules and decide how strictly to enforce them.

For example, a Biden administration could reinstate the Consumer Financial Protection Bureau’s efforts to limit payday lending and install leaders at the Securities and Exchange Commission and Labor Department who support “sustainable investing.” Biden’s Treasury secretary will also have substantial oversight of the financial sector and be in a position to bolster bodies such as the Financial Stability Oversight Council, the interagency panel that the Trump administration has starved of funding and staff.

That power has some banking officials worried about the makeup of the transition teams.

“They won the election, and they have the right to choose whoever they so desire,” said Richard Hunt, chief executive of the Consumer Bankers Association, an industry group. “I thought it was a missed opportunity by the president-elect to appoint people who have experience in banking as well as consumer activists.”

But proponents of a return to stricter oversight say the time has come for the pendulum to swing back and for regulators to stop relaxing rules on an industry that has raked in record profits over the past several years. Some view the “landing teams” as a sign that Biden is heeding the concerns of the progressive wing of his party and planning to put consumers before corporations.

And banks are not without a say in Washington.

“They get their voices heard enough; we know what they think,” Anat Admati, a professor of finance and economics at Stanford University’s Graduate School of Business and an expert in regulation, said of the banks. “There are a lot of people hurting in this economy. The financial sector is not among them.”

The Federal Reserve and its fellow regulatory agencies spent the Trump administration eroding financial industry protections that were put in place after the economic crisis a decade ago. Among other changes, stress tests for big banks are more predictable, oversight is less onerous for all but the largest bank holding companies, and restrictions that prevented banks from betting for their own profit have been slightly relaxed. Perhaps most important, the tone of bank oversight has been more industry-friendly — relevant because so much of the real work happens at the institution level, carried out by supervisors.

Financial industry lobbyists remain hopeful that Republicans will retain control of the Senate by winning both runoff elections in Georgia in January. That could force Biden to select more moderate nominees for key regulatory posts. But once in place, his personnel will have latitude to set a new tone for enforcement and rule-making.

“I’m actually cautiously optimistic that there will be an appetite for repairing the damage that’s been done in the Trump administration,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “I think you could get more progressive policies, better rules.”

Roper said a Biden administration could bring a long-needed overhaul of US accounting standards and reverse Trump administration rules that benefited private equity. In June, for example, the Labor Department issued a rule allowing private equity investments in 401(k) retirement plans.

“Private funds that have been counting on getting unfettered access to people’s retirement account should begin rethinking their strategy,” Roper said.

The Biden campaign does not permit members of the agency review teams to talk to the media, so it is difficult to know what they are thinking and planning. But it is clear that their ability to effect immediate change in financial regulation could be constrained by a last-minute push by Republicans to get two remaining Trump nominees onto the Federal Reserve Board.

Senate Republicans made clear Thursday that they will try to confirm the pair, Judy Shelton and Christopher Waller, before Trump leaves office. If both are approved, which appears likely, Trump will have filled six of the seven seats on the powerful Fed board, locking in a conservative majority that could last for years and potentially pave the way for a continuation of lighter-touch financial oversight.

While the Fed may be best known for setting interest rates — a largely nonpartisan exercise — it is also among the most powerful financial regulators. And while monetary policy votes are shared with the Fed’s regional banks, only board members have votes on the rules that govern the largest banks.

There will be limitations on what a Republican-heavy Fed can accomplish on its own. Many of the more important bank restrictions — like tweaks to the Volcker Rule, which prevents banks from betting with their own money — have historically been made on a cross-agency basis.

Jelena McWilliams, whom Trump appointed chair of the Federal Deposit Insurance Corp., has signalled that she plans to serve out her full term, which does not end until 2023. But Biden will be able to replace the acting comptroller of the currency quickly and is expected to do so, and other important roles, like Treasury secretary and head of the Consumer Financial Protection Bureau, are likely to go swiftly to Democrats.

That is why the industry is attuned to who is on the agency review teams, which could set the tone for what is coming.

“It will be a significant change in the orientation of financial regulation if these people are going to be the ones writing the policies,” said Christopher Campbell, assistant secretary of the Treasury for financial institutions from 2017-18. “From my perspective, the landing teams were folks that appeared to be more activist than centrist.”