WASHINGTON — Banks should be on the lookout for mentions of so-called junk fees, and hints about what could be coming down the pipe, at President Joe Biden's State of the Union speech Thursday evening, experts said.
With Super Tuesday — when many states hold their primary elections — in the rearview mirror, Biden's address on Thursday night is expected to set the tone for months of campaigning ahead of the 2024 presidential election.
"I view this as it's going to be the unofficial launch of his reelection campaign, and the State of the Union is much more important to him than Super Tuesday," said Ed Mills, a managing director at Raymond James.
Although the speech is happening just around a year after the failure of Silicon Valley Bank and the other large regional collapses, the turmoil didn't get enough political notice to make the banking industry a large factor in the speech.
To the extent that banking market sector stability is mentioned, Mills said that it could lend regulators support for implementing rules that would strengthen bank capital requirements.
"A year ago we were in a bank panic, and to the extent that he wants to highlight the strength of the economy, will he talk about the need to ensure the safety and soundness of our financial system?" he said. "That would be a code word for pushes in support of capital requirements."
A surprise private-sector
"This is not like 2010 or 2011 where we expected much of the speech to focus on the future of the U.S. financial system," said Jaret Seiberg, financial services analyst at TD Cowen. "The Great Recession is far in the rearview mirror and the regional bank flareup from spring 2023 is no longer top of mind for voters. It is why this may be a speech about the future of the economy, but it won't be one about the future of financial policy."
A cornerstone of Biden's campaign is expected to be his pitch on "Bidenomics," a set of economic policies that's meant to address, among other things, pocketbook issues like the fees that businesses charge to consumers. For banks, this mostly means overdraft fees, as well as credit card late fees.
"The focus of the speech where banks need to be focused on his junk fee agenda," Mills said. "It is not a coincidence that the credit card late fee rule came out this week so that he could talk about it at the State of the Union address."
On Tuesday, the Consumer Financial Protection Bureau
Biden's office and the CFPB have been in lockstep on the rule. The original proposal got high praise in Biden's last State of the Union address, and the bureau's director, Rohit Chopra, and Biden have appeared together at events touting the administration's efforts on the topic.
"Overall, I think the administration has decided that junk fees is a good, populist-type issue through which they can try to show a contrast with the Republicans," said Ian Katz, managing director of Capital Alpha Partners. "They see it as good political messaging."
Regardless, experts don't anticipate banking to be at the forefront of Biden's agenda during the speech. Katz said that he would be surprised if Chopra didn't get, at least, a shout out during the speech.
"And I am sure the President will praise the final rule cutting credit card late fees," he said. "Yet these are likely to be passing mentions in a speech that is focused outside of financial policy."
In 2023, the Biden administration pledged to reduce "junk fees." Ahead of this year's State of the Union, we revisit what progress has been made.
On the margins, Katz said that housing issues could get a mention, including efforts that the Biden administration has promoted such as spurring home buying for low- to moderate-income borrowers. Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, is hosting a press conference to push some of Democrats' bills, which have stalled in a Republican-controlled House, just hours before Biden's speech.
Another key element of Bidenomics is industrial policy, and Biden could mention further plans around tightening approval for consolidation. That would include deals in the financial sector, most notably the potential Capital One-Discover acquisition that's expected to face tough scrutiny from regulators.
As part of the effort against what the Biden administration has termed "junk fees," the CFPB in January also proposed a radical overhaul to how overdraft fees are calculated and charged by financial institutions with more than $10 billion in assets. Biden is likely to talk about this proposal as well, Mills said.
"No one thinks that the overdraft rules are going to be able to get into place before inauguration day next year," he said. "Anything that is proposed now, while it might create a big headline, while it might create the next fight, cannot be implemented before going into the next election, so that becomes a play on who is the winner of this election."
