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09Nov

The People Have Spoken- What Did the Regulators Hear?

As people from both ends of the political spectrum took to the streets Saturday in reaction to election news, many were quietly asking themselves, “Wait- what does this mean for banking and fintech?” (just kidding- sort of)

I’ve pondered this question a fair bit myself. Let’s consider what we know- and what we can speculate on- so far:

As in 2009, a new administration is taking the reins in the midst of a major economic crisis. The parallel quickly breaks down from there, however. The Great Recession that greeted Barack Obama was widely seen as having been precipitated by the lending practices of global financial institutions. Twelve years later, few if any fingers are being pointed at FIs and fintechs; if anything they’ve gotten kudos for shepherding small business through initiatives like PPP loans.

As a result the incoming 2009 administration brought us financial reforms like Dodd Frank, the Durbin Amendment and the CFPB, all of which have been sources of consternation for banks and credit unions ever since. Breathe easy- there is little reason to expect a 2021 repeat. Although we’re likely to see incremental adjustments toward stricter regulation- mostly in the form of unwinding relaxation that occurred during the Trump years- there are far greater priorities to tackle and no meaningful mandate for a financial services overhaul. A divided government (assuming Republicans retain Senate control, as widely expected) will also serve as guardrails against any dramatic shifts in policy.

That doesn’t mean to expect the status quo, however. One agency to watch is the OCC, whose leader Brian Brooks has never progressed beyond an Acting role. Brooks is an interesting player given his blockchain/cryptocurrency background (he had been Coinbase’s Chief Legal Officer). He’s taken an active interest in advancing the use of blockchain in financial services, and ruffled feathers at other agencies by entertaining applications for special purpose licenses for nonbanks.

I’d expect Brooks to be the first high-profile departure from the financial regulatory ranks. It’ll be interesting to see how his successor addresses the important but complex matter of blockchain/crypto regulation. On a related note, the State of Wyoming is aggressively courting nonbanks with Special Purpose Depository Institution licenses, toward its goal of becoming a “Blockchain Capital.” The leading architect of this strategy lost his state senate re-election bit, for reasons apparently unrelated to the initiative.

The agency sure to attract the most attention is the Consumer Financial Protection Bureau- which of course was the brainchild of Elizabeth Warren before her election to the Senate. There’s a cruel irony here- the Trump Administration filed suit to upend the agency’s structure, and earned the right for presidents to appoint the CFPB head. As a result President-Elect Biden will have the chance to replace Trump’s hand-picked leader.

Kathy Kraninger’s CFPB term has three more years to run. In my view she has not been as politically strident as many Trump appointees; although I’ve already seen others speculate on her departure I could envision her serving the full term with some course corrections. One natural candidate is the reversal of recent payday lending rules which reopened the field to certain unsavory practices.

At the National Credit Union Administration (NCUA), Trump appointee Rodney Hood’s term runs through August 2023. Unless Mr. Hood opts to return to the private sector I can likewise envision him being retained in a Biden administration. Like Ms. Kraninger, Hood has served in a largely non-partisan manner and absent a compelling reason for change, a degree of stability is desirable in a sector that benefits from a steady hand.

The banking/fintech world is never static, and we’re sure to see several developments in the coming months- it’s my guess these will center on the intersection between FI and fintech rules of engagement. I would not expect anything close to the level of upheaval seen in 2009-10, however.  

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