Banks need to be at the center of Harris' 'opportunity economy'

Bloomberg News

Back in 1989, Steven Covey published "The Seven Habits of Highly Effective People," a pioneering advancement in the business/self-help genre that became something of a fad in the early 1990s, right up there with beanie babies, bucket hats and flannel shirts. One of those habits that Covey describes is to "Begin with the end in mind" — that is, when undertaking any kind of project, have a clear vision of what outcome you want and work backward to develop the steps you must take to make it a reality. 

I thought of this last week when watching the debate between Vice President Kamala Harris and her rival, former President and Republican presidential nominee Donald Trump. While not the most viral moment of the debate, Harris' push for what she called an "opportunity economy" struck me as a pretty good tagline for a pretty good vision for what the economy should feel like for most Americans. 

"I believe in the ambition, the aspirations, the dreams of the American people," Harris said at the debate. "And that is why I imagine and have actually a plan to build what I call an opportunity economy."

Harris had already unveiled this catchphrase a few weeks before the debate in a speech on Aug. 16 and fleshed out both the end she had in mind and the means to that end, at least in the broadest strokes. An opportunity economy, she said, is one where "everyone can compete and have a real chance to succeed," where all Americans have a shot at building generational wealth, and where "we remove the barriers to opportunity so anyone who wants to start a business or advance their career can access the tools and the resources that are necessary to do so."

Many of the heaviest planks of Harris' opportunity economy platform don't run directly through banking — tax reform, student loan debt relief, expanded access to childcare and banning price gouging have glancing impacts at best on the banking industry as a whole. But what she is describing is a world in which the core tenets of family life — a good home, a good job and children you can afford to take care of — are attainable not only to the fortunate and well-born but to working-class Americans as well. 

That's a laudable goal, both in political and practical terms. People who have or feel like they can attain the things they want in life are happier, and happy voters are voters who will elect you and re-elect you. And if people feel like their lives are going somewhere financially stable, they will spend and invest their money in ways that lead to a stronger and more resilient economy. It is also worth noting that, for many Americans, those things are currently out of reach: household formation is now happening at the lowest rate ever recorded, and median home sale prices have almost doubled in the last 15 years while household income has only grown by about 15% over that same period. So whatever an opportunity economy is, what we're in right now ain't it.

When I imagine what an opportunity economy would look like, it's a world in which consumer financial intermediation is done primarily by banks and credit unions. Insured depository institutions — both banks and credit unions — play by certain rules, and those rules exist to protect the consumer, the financial system and the institutions themselves. If opportunity is the name of the game, IDIs would be ideal partners in that game because you know that they're playing on the level.

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But the banking industry and the Biden administration have not had a very productive relationship to date, and the best illustration of that dysfunction is the Basel III endgame capital proposal. The proposal was poorly executed, I think it's fair to say, and sparked an outcry from industry that was uncommon in its speed and ferocity. Regulators are apparently opting for a do-over and envision a far less onerous plan instead, but whether that new proposal is one that can create a lasting peace is far from certain. 

For the banks' part, a combination of pent-up frustration and newfound confidence has led to a flurry of lawsuits over everything from small business loan reporting to Community Reinvestment Act rules, a strategy that might make regulators more careful but that might also lead to unpredictable outcomes.

If we have a Harris White House, it would behoove that administration to find a way to meet its goals of safety and soundness in the banking industry without needlessly penalizing that industry. Likewise, banks should also embrace the vision of an opportunity economy as a desirable goal — not for altruistic reasons but because a vibrant and growing middle class is chock full of the kinds of customers banks and credit unions need in order to thrive. 

One area of common ground that would meet both of those needs is expanding the regulatory perimeter to subject more nonbanks that engage in bank-like activities to bank-like regulatory burdens. The recent experience of Synapse's bankruptcy is a prime example of what can go wrong when "innovation" takes place in a regulatory gray space, and closing those gaps will be critical to any effort to make opportunity available to more Americans. 

If there are enough homes for people to buy, they're still going to need a mortgage; if someone wants to start a sound business, they're going to need startup capital. If there is opportunity, people will find it — that's the easy part. Turning an opportunity into a reality safely and without scams or gimmicks is the hard part, but it's what banking is all about. Moving past the dysfunction of the last year or two in banking policy may seem like a second-order problem, but if Harris wants to make middle-class financial stability a reality for more people, she needs buy-in from banks. It's an opportunity that's too good to pass up.