As voters begin to cast their ballots for the 2020 U.S. presidential election, how the country regulates the nation's banks is not likely one of their top areas of concern.
But a victory from Democrat Joe Biden would likely bring about tougher rules on the biggest institutions, analysts say, turning up the heat on the likes of JPMorgan Chase & Co. and Wells Fargo & Co. and imposing new requirements on the industry.
That may not happen right away, given the usual delay for a new administration to get nominees in the door at federal regulatory agencies. If Biden were to win and take office in January, the country could also still be in the middle of the COVID-19 pandemic and the associated economic downturn, potentially making it an inopportune time to shift the regulatory framework substantially.
But banks could still expect to face heightened scrutiny on a range of issues, including overdraft fees, climate change exposures and diversity within their ranks.
The overall framework of how the government regulates U.S. banks, however, is unlikely to change very much. That is mostly because analysts agree that President Donald Trump fell short on his promise to do "a big number" on the Dodd-Frank Act, the financial regulatory package created in the wake of the 2007-09 crisis.
"Despite the headlines, the actual regulatory relief of the banking industry has been less than what was expected the morning after Trump won," said Isaac Boltansky, director of policy research at Compass Point Research.
Changes to big bank rules at risk
To be sure, Trump appointees at the key bank regulatory agencies made changes that critics say weakened the financial system before the COVID-19 pandemic hit. The lone Obama administration appointee at the Federal Reserve's Board of Governors, Lael Brainard, has now voted against 20 regulatory decisions. Martin Gruenberg, the former Federal Deposit Insurance Corp. chair who remains on the FDIC board, has also argued that some of the changes over the last four years went too far.
One such decision includes excluding many regional banks from the liquidity coverage ratio, a measure that looks to ensure banks have enough cash or cash-like assets on hand to withstand potential stresses over a 30-day period. Larger regional banks, such as U.S. Bancorp, PNC Financial Services Group Inc. and Capital One Financial Corporation, are still subject to the LCR but at a reduced level. Other smaller regional banks are now exempt entirely from the LCR, the full limitations of which now only apply to nine major banks.
Those changes appear technical and are not headline grabbing, but they nonetheless weakened some critical post-crisis regulations, argued Amanda Fischer, policy director at the left-leaning Washington Center for Equitable Growth. While a potential Biden administration could look to reverse some of those actions, the outlook for changes depends on how the COVID-19 pandemic evolves and whether it causes "massive balance sheet problems" at banks.
"If we're in crisis mode, I think it's a whole different ballgame," said Fischer, a former staffer for Ohio Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee.
The advocacy group Better Markets also laid out a series of ideas for bank regulators to tackle that include: reversing the LCR changes; returning to the prior enforcement structure for the Volcker rule's restrictions on proprietary trading; and reinstating the Fed's "qualitative objection" to big banks' capital planning processes.
Some of Treasury's 2017 recommendations unfulfilled
Trump's Treasury Department did not envision a complete rollback of Dodd-Frank when it came into office. In one 2017 report outlining recommendations to lawmakers and regulators, the Treasury Department asked them to reduce "unnecessary complexity" in Dodd-Frank rules and to apply them to more narrow sets of banks.
Many of the Treasury's key recommendations have been fulfilled, either due to actions from regulators or a bipartisan package that Congress approved in 2017. But other changes were either skipped over or are incomplete.
The Fed, for example, has refused to lower an extra capital surcharge for the eight U.S.-based global systemically important banks so that it more closely matches their international competitors' requirements. The Financial Services Forum, a trade group that represents those eight U.S. banks, has argued the current G-SIB surcharge setting raises the cost of providing more loans and could dampen the recovery.
But Fed Chairman Jerome Powell said for months ahead of the pandemic that capital levels at the biggest firms were "about right" and that the G-SIBs did not have difficulties competing internationally.
Biden win could mean unified CRA framework, new tone from CFPB
Regulators have also struggled to get on the same page on overhauling the Community Reinvestment Act, a law that aims to prevent lending discrimination at banks. While there is widespread agreement that regulators should modernize the CRA framework to reflect the rise of digital banking, the three agencies in charge of doing so have been somewhat split on how that should happen.
A Biden administration could lead to a unified framework for CRA changes from the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, analysts say.
It would also mean major changes at the Consumer Financial Protection Bureau, particularly given that Biden would be able to appoint someone immediately due to the Supreme Court's June decision that the president can remove the CFPB director at will. A Democratic-led CFPB would bring new scrutiny on banks' overdraft fees, ATM fees and potentially changes to the nation's credit reporting bureaus, said Karen Petrou, managing partner at Federal Financial Analytics.
Rule easing for smaller banks likely here to stay
But many of regulators' rule changes for community banks and their larger regional peers are unlikely to shift much, analysts say. That is largely because there was bipartisan agreement in Congress to ease regulations for those banks, a consensus that is likely to continue.
Banks with less than $10 billion in assets are therefore unlikely to be re-added to the list of institutions that are subject to the Volcker rule's restrictions. They are also unlikely to be subject to formal Dodd-Frank stress tests again, but that does not mean they "shouldn't engage in stress testing," said John Geiringer, a partner at the law firm Barack Ferrazzano.
Community bankers still remember the lessons from the 2007-09 crisis, which taught them to more closely monitor their capital levels and concentration to certain sectors, Geiringer said. And that has been critical during the COVID-19 pandemic, as banks need to closely monitor their exposures to hard-hit industries like travel and entertainment.
"Hopefully banks got some muscle memory from the last crisis to remind them on how to deal with this crisis and future crises," Geiringer said.