12/19/2018

What the 2018 elections mean to Financial Institutions

Ann Jones December 19th, 2018

No matter which side of the political aisle you’re on, one thing is for certain: The 2018 midterm elections took us all on a wild ride. Now that the dust has settled, recounts have been completed and the newly elected politicos — a more diverse group than ever before, with more women, people of color, diverse faiths and even ages — are readying to head to Washington, many FI pros are wondering what it’s all going to mean for community banks and credit unions.

Will the divided Congress — the House controlled by Democrats, the Senate by Republicans — mean nothing but gridlock? Time will tell, but pundits are predicting an active agenda as both parties gear up for the presidential election cycle in 2020. Expect Democrats, who now control the House, to push for aggressive oversight and policy agendas in the run up to the 2020 elections, including investigative measures.

Given that political dynamic in Washington, what sorts of priorities and policies might come down the pike for financial institutions? Will the Democrats’ newly won oversight be focused on the financial services sector?

The financial services industry wasn’t about to take any chances on that, and wanted to help pro-banking lawmakers on both sides of the aisle get elected. Credit Union National Association invested some $7 million in support of 388 House and Senate races, both Republican and Democrat, winning 349 of those seats. To the CUNA, a candidate’s political affiliation wasn’t the issue, it was whether the candidate understood and championed the issues important to financial institutions.

Similarly, the ABA’s congressional relations team and partners in the ABA-State Association Alliance, ABA BankPac, invested $3,186,700 in supporting pro-banking candidates in 46 states. BankPac’s whole purpose is to support pro-banking candidates, and this election cycle, 90 percent of the candidates they supported won their seats thanks in part to their efforts. We’ve got a fairly banking-friendly Congress, but here are a few issues to watch:

A new credit union taxation bill. This has been in the works for a few years now, and it would increase taxes by about $2 billion per year. Members and CU leaders oppose this bill. However, with the House and Senate being led by different parties, the likelihood of this bill finding its way to the floor is very small, according to CU Insight.

Changing leadership on the House Financial Services Committee. Democrat Maxine Waters is set to take the gavel, and FIs are a little uneasy about that. Waters has expressed the view that not-for-profits, like credit unions, should be considered for tax exemption. But, she has also expressed interest in increasing regulations on larger banks. Look for her to hold hearings with banking execs and call for greater scrutiny of regulations.

Decreased regulation. Kathleen Kraninger is heading up the Consumer Financial Protection Bureau this year and is a known supporter of decreased regulation, which the finance industry also supports. So, it’s a good bet that FIs will see less regulation coming down from the CFPB. However, the leadership is up for election every two years, and in 2020 someone with differing views might take the helm. There’s real opportunity here for a divided Congress to find common ground. Last year the Treasury Department released its report on FI regulatory reform. About a third of those recommendations require Congressional action, and the rest can get done through rulemaking. The Economic Growth, Regulatory Relief and Consumer Protection Act passed in May, and any further action is likely to be limited.

FinTech. The Democratic House majority may well call for increased scrutiny of fintech, so watch this issue carefully.

As we head into a new legislative session after these historic midterm elections, it’s useful to remember that the only constant in politics is change. The House and Senate are controlled by different parties, and on one hand, that could spell gridlock, stalling progress on crafting any sort of meaningful legislation. But on the other hand, these new faces in Congress are vastly more diverse than any we have had in the past. More women than ever before were elected, but the diversity doesn’t end there. The first Muslim women, one a Somali immigrant, were elected, as were the first Native American women. The youngest woman ever elected to Congress, aged 29, unseated a 10-term incumbent from New York. That’s a whole lot of shake-up. Maybe it won’t be business as usual on Capitol Hill.

This content is accurate at the time of publication and may not be updated.