A Democratic takeover of one or both chambers of Congress could put a damper on federal agencies' deregulatory agenda, but will not derail it entirely.
Stifel's Chief Washington Policy Strategist Brian Gardner's base case midterm election result is that democrats will win the House while republicans will retain control of the Senate, despite fears over the economy and affordability making the possibility of a democratic sweep more likely. Even if both chambers flipped, major financial services legislation would face significant obstacles with President Trump retaining veto power, but the industry would still face challenges like slower deregulatory progress and headline risk, according to the analyst.
"We doubt that a Democratic win in the midterm elections would create a headwind for the industry, but it might not enjoy as strong of a following breeze as it has to this point," Gardner wrote in an Oct. 12 note.
A Democratic win could come with some positives for the industry, particularly for mid-sized banks, as the party is more open to revisiting deposit insurance. Gardner does not expect the midterm results to have an impact on bank M&A, but any banks wanting to complete larger deals will be "on the clock" to do so before the 2028 president election could potentially change merger policy.
But a change in congressional control would bring new financial services committee chairs and priorities. Democratic-led committees could slow the regulatory process through investigations and document requests directed at federal agencies, Gardner wrote.
"This can slow down, but not stop, the regulatory process. Thus, the Trump administration's regulatory agenda for financials should continue, albeit at a slightly slower pace," he said.
Under a Democratic-controlled House, Rep. Maxine Waters (Democrat-California) would likely chair the House Financial Services Committee, according to Gardner. While Waters is not a "friend of the banking industry," she is more likely to focus her priorities on housing, leaving the financial services sector "relatively unscathed," Gardner wrote.
The Senate Banking Committee chairmanship spot would be between Sen. Elizabeth Warren (Democrat-Massachusetts) and former Sen. Sherrod Brown (Democrat-Ohio), who is looking to win back his Senate seat. A banking committee led by Brown would "produce fewer negative headlines for the banking industry," compared to Warren, Gardner said.
"If Warren becomes chair then we would expect a heavy focus on the Wall Street banks and more negative headlines," he wrote.
One area both chambers might focus on is the Jeffrey Epstein scandal, potentially bringing scrutiny to large banks.
"Democrats smell blood in the water regarding the Jeffrey Epstein scandal. As they investigate the Trump administration's handling of the matter, their inquiries could put some large banks in a negative light to the extent that these institutions had relationships with Epstein and if the inquiries produce new information," Gardner wrote.
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The credit card industry faces the greatest potential policy risk, according to Gardner. A cap on credit card interest rates could come back into play under a Democratic Congress amid concerns about affordability and high interest rates.
"We are skeptical that Democrats will be able to enact policy changes with President Trump still in the White House. However, a cap on credit card interest rates might be a possible exception to this rule given Trump's previous support for the idea," Gardner wrote. While a 10% cap might not garner enough Democratic support, a higher cap, such as 20%, "could have a better chance of passing."
The Credit Card Competition Act, which recently stalled, could also reemerge.
Fintech companies could face hearings on banking regulators' treatment of the sector, but overall Gardner does not expect fintech policy to be a Democratic priority. Similar hearings could examine the Securities and Exchange Commission's deregulatory and enforcement policies, but these issues are also unlikely to be a priority.
Housing is more likely to be a central Democratic focus. Potential measures could expand the Federal Housing Administration's role, make FHA insurance more competitive with private mortgage insurance, permit mortgage-insurance cancellation once loan balances reach 78% of original value, and expand down-payment assistance.
The Federal Reserve could be affected indirectly. If Fed Governor Jerome Powell remains on the Board and the Senate changes hands, the analyst doubts Powell's seat would be filled before the next presidential election.
"This would deprive Trump of the opportunity to further remake the Fed," Gardner wrote.
