With Kamala Harris potentially assuming the role of President of the United States, her administration’s approach to banking policy is expected to follow a trajectory that, while different, shares some similarities with the current Biden administration, according to TD Cowen Washington Research Group in a note. dated Monday.
However, her background, political leanings and expected supervisory appointments could lead to nuanced shifts that could have a significant impact on the banking industry.
Key expectations about banking policy under Harris
Completion of the Basel 3 endgame and regulatory continuity: The Harris government is expected to complete key regulatory initiatives such as the Basel 3 Endgame, which includes a set of international banking regulations designed to strengthen regulation, supervision and risk management within the banking sector.
Regulatory consistency: Harris is expected to maintain continuity with ongoing regulatory efforts, meaning the Basel 3 endgame will not be derailed or long-term debt and liquidity rules for banks, especially regional banks, will be introduced.
The completion of these initiatives would likely continue under her administration, ensuring the stability and predictability of banking regulations.
Capital and liquidity requirements:
Impact on capital levels: Although Harris is seen as more pragmatic than Biden, capital requirements for the largest banks are still expected to rise by 3% to 5%.
This would represent a more moderate increase compared to what could happen under the Biden administration, but would be a significant continuation of efforts to strengthen the financial system.
Long-term debt requirements for regional banks: The Harris government is expected to impose long-term, unsecured debt requirements on regional banks, requiring them to hold between 5% and 5.5% of their risk-weighted assets in such debt.
This is in line with efforts to ensure that these institutions have sufficient buffers in the event of financial instability.
Regulatory appointments and political influence:
Pragmatic approach: Unlike Biden, who was significantly influenced by progressive voices, Harris is expected to adopt a more centrist stance. Her likely focus would be on appointing regulators who prioritize economic growth over aggressive reforms.
This could translate into a regulatory environment that is less stringent than under Biden but still cautious compared to a potential Trump administration.
Moderate constituency: Harris’ potential victory would depend on support from moderates, setting her apart from Biden, who had strong progressive support.
This could result in banking policies that are more business-friendly, especially when it comes to regulations that impact smaller and regional banks.
Bank mergers and acquisitions (M&A):
Enhanced M&A environment: Under Harris, the environment for bank mergers and acquisitions is likely to become more favorable. Because mergers and acquisitions may not be the main focus for her government, market forces could encourage more deals, although this could be limited for the largest banks due to regulatory scrutiny and the potential for greater systemic risk.
Historical context and progressive influence: Tenure of California’s Attorney General: Harris’ aggressive stance toward banks during her tenure as California’s attorney general, especially in the wake of the financial crisis, has been noted.
However, it is argued that this experience may not strongly influence her presidential policies, given the significant time lapse and different political context. While this history is important, it is unlikely to shape its approach to national banking policy.
