Regulatory Outlook | 12.02.20
Banks Applaud Biden’s Prospective Economic Overlords – For Now
The banking sector's worst fears about a Biden administration haven’t played out.
Elizabeth Warren will not be Treasury Secretary.
But Janet Yellen will be. The former Fed chief's generally well-received selection and some other Biden economic team picks – a mixed bag, with some baggage – has sparked discussions about what kinds of fingerprints these individuals might put on financial services.
Here's a rundown of some of the folks named to senior positions by President-Elect Biden, and some logical speculation in terms of what they might bring to the policymaking table.
Let's start with Yellen.
She's on record as being an advocate of stricter financial regulations. But you know what? We're all good with her – at least that was, essentially, the response from both the American Bankers Association and the Consumer Bankers Association.
Richard Hunt, CBA’s chief, underscored how Yellen and her views are well-known to the sector. “She is a tested, steady hand and will play a pivotal role as our nation works to recover from the economic effects of the COVID pandemic,” Hunt said. “We appreciate the working relationship she had with CBA during her time at the Federal Reserve.”
The Credit Union National Association, likewise, praised Yellen's steady hand as chair of the Fed from 2014 to 2018 after serving as deputy chair from 2011 to 2014.
BlackRock’s Gang Green
Next up: the two BlackRock guys. Biden tapped Brian Deese, BlackRock’s head of sustainable investing, to run the National Economic Council; and, for the position of deputy to Yellen at Treasury, Team Biden went with yet another BlackRock senior executive, Adewale “Wally” Adeyemo. He’s a former chief of staff to the money management firm’s top executive, Larry Fink, once viewed as a possible Hillary Clinton cabinet shoe-in had she won four years back, and who would now appear to be in the catbird's seat in terms of coveted role private-sector-minded public policy puppeteer.
Fink has strong views on markets (room to run), monetary policy (keep rates low) fiscal policy (deficits can wait, more stimulus) and social justice trends: “mostly it is the wealthy people who own all the financial assets,” Fink has said, “and that’s why fiscal stimulus is so important.”
As the head of a passive asset management juggernaut, Fink certainly has made it inexpensive for retail investors, albeit at the expense of active money managers.
Fink has championed BlackRock’s unambiguously articulated stance that with humongous amounts of assets comes great responsibility, with respect to issues such as climate change and socially responsible investing. BlackRock earlier this year announced a number of initiatives to put sustainability at the center of its investment approach, including: making sustainability integral to portfolio construction; exiting investments that present a high sustainability-related risk (e.g. thermal coal producers); and launching new investment products that screen fossil fuels.
A plan to invest $2 trillion in clean energy (wind, solar) was at the heart of the Biden platform and the former VP nearly cost himself the state of Pennsylvania (home to an extensive hydraulic shale fracturing industry) with a debate comment (later walked back) about leaving fossil fuels behind.
Deese’s expertise on climate policy puts him at the center of the green initiative which is going to have long and wide-ranging tendrils that banks and credit unions can’t afford to ignore, from ESG products for the next generation to recruiting efforts among young people who care about these issues.
Financial Executives Assuaged
If all that green stuff sounds progressive, keep in mind that liberals and investor advocates are expressing concern that having large money managers in oversight roles will only lead to lighter regulatory scrutiny for large money managers.
All things considered, alternative energy, in tandem with power grid overhaul, could be a win-win for the economy and consumers; and it’s not like Bernie Sanders is being tapped to head the Consumer Financial Protection Bureau.
Although the CFPB, seen as having been de-fanged during the Trump administration, could at least get its grinders back, according to some consumer advocates who are optimistic that he Biden administration will no doubt try to strengthen the agency.
The incoming administration, with its picks thus far, would seem to be telegraphing a desire to alleviate financial executives’ concerns, not raise their hackles.
Biden putting forth people tied to such a large and powerful asset manager sends a clear signal to the industry – to “breathe easier,” said Tyler Gellasch, the executive director of the Healthy Markets Association.
But surely some massive new regulatory or tax risk is lurking, some hammer still to come down?
Eyes On Gary Gensler
Among the best-known and most closely watched member of Team Biden is Gary Gensler, selected to help shape the plans for Wall Street oversight.
The former head of the Commodity Futures Trading Commission is seen as having had a tough but fair approach to rulemaking during the Obama administration and in the wake of the mortgage crisis. Gensler spearheaded the overhaul of derivatives markets mandated by the 2010 Dodd-Frank Act.
As head of the CFTC from 2009 to 2014, Gensler wasn’t afraid to throw elbows or even a few punches en route to creating a new regulatory framework for controversial derivatives i.e. credit default swaps.
Gensler’s name is being bandied about as a potential pick to head the SEC.
Finally, did you hear the rumor about Andrew Yang?
Yang's name keeps coming up as a possible pick to join the Biden administration, possibly even getting the nod for Secretary of Commerce, as some chattering pundits have put forth as something they’ve heard whispered.
During his bid for the Democratic presidential nomination, Yang promoted universal basic income – what he called the “freedom dividend,” a $1,000 monthly stipend for every single American adult; which, in light of the pandemic, and Fed Chair Jerome Powell’s dire warning about looming economic peril, is suddenly not so far-fetched.