New Trump Administration Expected To Undo Biden’s Financial Regulation

[Guest Writer, Marco Rosaire Rossi, is the executive director of Washingtonians for Public Banking and an adjunct professor in political science in Washington state.]
 

The Biden administration was far from perfect when it came to banking regulations, but it did turn a substantial corner in breaking with the neoliberal orthodoxy of previous administrations—including Obama’s. Now, with president elect Donald Trump returning to the White House in January, there will likely be a rapid and dramatic undoing of the Biden administration’s victories. As expected, the consequences of Trump’s hacksaw approach to banking regulations will undoubtedly harm average Americans, and lead to the type of wild west environment that was indicative of the Great Recession.  

First, there is antitrust. Under the Biden administration antitrust regulators experienced an administrative renaissance. Anchored in Executive Order 14036, the Biden administration declared a “whole-of-government” approach to market competition, meaning that ensuring fair and competitive markets was now the responsibility of numerous federal agencies who were expected to work in concert toward the goal. 

After releasing his executive order, the Department of Justice’s Antitrust Division replaced its 1995 Bank Merger Guidelines with the more modern and aggressive 2023 guidelines. The new guidelines deviated from the “consumer welfare standard”—which placed the burden on regulators to prove that consumers would be harmed by a merger—and instead adopted a “structural presumption” standard, which focused on the dominance that a firm would likely have in the market. To outsiders the linguistical maneuver might appear trivial, but in practice it meant the federal government now considered monopolization in-and-of-itself a problem for the market regardless of if it could prove a specific harm to consumers. 

Undoubtedly, Trump will rescind Executive Order 14036. Antitrust enforcement will be returned to the narrow work of a few or one agency and the government will be moved back to a “consumer welfare standard,” especially as it relates to the banking sector. Already, investors are preparing for his administration to approve Capital One Financial Group’s $35.3 billion purchase of Discover Financial, a deal that Biden’s regulators were opposing. 

Next, is capital requirements. In accordance with Basel III Endgame’s international standards, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) have been working on new regulations that would require  America’s largest banks to raise their capital reserves to remain operational. Regulators have proposed that banks with more than $250 billion in assets but are not considered systemically important to the overall economy would see a 10% increase in their capital requirements, while banks with assets between $100 billion and $250 billion would see a 5% increase. This would average to an additional $2 of capital for every $100 of risk-weighted assets. Additionally, the increase would be eased overtime, with full implementation of the regulations scheduled to be completed in 2028. Despite the intense opposition from America’s largest banks, with their lobbyists claiming that any increase in capital requirements would stifle lending, experts believe that the impact on lending would be minimal, and be offset by the long-term benefits of a more stable banking sector. In 2020, economists at the Federal Reserve Bank of New York published a paper that concluded that increased capital reserves among banks correlated with a reduction in the likelihood of an economic slowdown. 

The agreement on capital requirements has not been finalized, and regulators have unfortunately continued to water down their position to appease the banking sector. Still, it was expected that an agreement would be reached soon. However, with a new Trump administration taking the reins of power, an agreement could be postponed indefinitely, or—even if a deal is finally worked out—enforced so casually as to not be effective. 

Finally, there is price gouging. Early on, the Biden administration committed itself to ending price gouging in the financial sector by empowering the Consumer Financial Protection Bureau (CFPB) to go after junk fees, especially in the credit card industry. For decades, credit card companies had been exploiting loopholes in the regulatory framework, charging people an average of $32 each time they made a late payment. These late payment fees had become a cash cow for the industry, totaling $14 billion a year, and equaling 10% of the total amount that consumers paid in all interest and late fees to financial companies. Biden’s appointed head to the CFPB—Rohit Chopra—put an end to this excessive price gouging by reducing late fees to $8 and requiring credit card companies to be transparent with their math when issuing bills to consumers. 

During his previous administration, Trump significantly hindered the CFPB. With the United States Supreme Court’s decision in Seila Law LLC v. CFPB (2020), the CFPB was determined not to be an independent executive agency, meaning that the president is empowered to fire the heads of the CFPB without cause. There is little doubt that once in office Trump will remove Rohit Chopra from the agency’s leadership, appoint his own people, and rapidly undo the progress the agency has made on fighting price gouging. 

Undeniably, many people voted for Trump because they believed that he would curb inflation. The high cost of housing, energy, and food in the post-pandemic economy is surely a burden for working people, and they are right to be angry at the Biden administration for not doing more to tackle the issue. However, Trump’s lackadaisical approach to monopolization, regulation, and price gouging in the financial sector will only make matters worse. 

Trump and the Make America Great Again movement might be an outgrowth of the pain and frustration felt by Americans in the aftermath of the Great Recession, but his governing ideology—especially when it comes to the nation’s largest financial institutions—won’t help hard working Americans. If anything, these reckless policies will likely drive the country into another economic collapse.