What the election results mean for bankers
The November elections and banking policy
This is the first midterm since 1934 that the party in power defended every incumbent Senate seat.”
Over the last 100 years the party that did not hold the presidency made substantial gains in the midterm elections. The only two exceptions were after FDR was elected and during George W. Bush’s first midterm. Historically, gains in the U.S. house ranged from 20 to 50 seats and bad economic conditions resulted in even more losses. It was assumed that, with inflation, illegal immigration and increasing crime rates, Republicans would have major victories and claim majorities in the House and Senate.
Expectations hit a brick wall
The Republicans gained enough seats in the House to achieve a majority, albeit a narrow one. Republicans will hold 222 seats, the Democrats 212 with one seat still vacant. This narrow majority is almost exactly what Speaker Pelosi had for the last two years.
A look at how the votes panned-out indicates that the Dobbs decision, pushing abortion policy back to the states, motivated a lot of younger voters. Additionally, voters did not reward candidates described as “election deniers” about the 2020 presidential vote.
Republicans had high hopes about gaining the upper hand in a 50/50 Senate. Minority Leader Mitch McConnell ended up being prescient in his concerns about Republican “candidate quality.” Republican challengers lost in Pennsylvania, New Hampshire, Arizona and Georgia. This is the first midterm since 1934 that the party in power defended every incumbent Senate seat.
The House
The House will have an ambitious investigative agenda. Expect hearings on Hunter Biden, FBI actions (dating back to 2015) and immigration. There will most likely be an effort to initiate impeachment hearings on Homeland Security Secretary, Alejandro Majorkas.
The new Republican committee chairs will put federal agencies under more scrutiny. Representative Patrick McHenry from North Carolina is expected to chair the House Financial Services Committee. Biden appointees from the OCC, the FDIC, the Federal Reserve and the CFPB will have to justify their policies to a more skeptical audience of House Republicans. Issues such as acting on climate change, fair lending and CFPB overreach will be front and center.
The Senate
The new 51 to 49 Democratic majority will give Senate Democratic leader, Chuck Schumer, some breathing room. Over the last two years the 50/50 Senate required Schumer to get all 50 of his colleagues, at times there were holdouts, and then bring in the Vice President to confirm nominations or pass spending bills that didn’t need 60 votes.
Biden appointees will have an easier path to a floor vote. Positions at the FDIC and the OCC still await confirmation. Senate Democratic chairs will have the ability to control the agenda of hearings, hire more staff than the Republican minority and issue subpoenas for documents and recalcitrant witnesses.
Democratic Senator Elizabeth Warren will have a bigger platform for her views. Any legislation that gets passed by a Senate committee and is subsequently passed by the full Senate will probably be ignored by the House. House bills will get the same treatment in the Senate.
For the next two years, Schumer is expected to pass bills that are merely symbolic in nature, knowing that the House will not act on them. Every two years, one third of the Senate is up for reelection. In 2024, 23 Democratic senators are up for reelection, many in states that Trump won in 2020, along with 10 Republicans. It is anticipated that Schumer will orchestrate votes to protect his majority and attempt to make Republican incumbents look vulnerable.
Banking policy
In the world of banking policy, the biggest wild card is a recent decision from the federal Fifth Circuit Court of Appeals. Last October, the court held that CFPB funding, 12% of the revenues of the Federal Reserve System, was unconstitutional in that it violated the appropriations clause of the Constitution and the separation of powers doctrine. The ruling, if upheld, could vacate all CFPB regulations and enforcement actions over the last 12 years.
The CFPB and the Department of Justice have asked the Supreme Court to fast-track consideration of the case. It is possible that the highest court will hear oral arguments this April and rule a few months later.
It is not a given that the Fifth Circuit decision will be upheld. Other federal courts have ruled that the funding of the agency is constitutional. If, however, the Supreme Court rules against the agency and the Biden administration, there will be a mad scramble to get Congress to act on a funding mechanism.
House Republicans have long been opposed to the CFPB’s reach and its lack of accountability. This could be an opportunity to get some relief for community banks.