BankThink

No matter who wins the election, uncertainty looms for banks

Harris Trump signs
Bloomberg News

There's a kind of conventional wisdom about banks that says that banks crave certainty and hate chaos. That's true to an extent, but it isn't actually quite right — banks would never exist in a world with perfect certainty. Banks like — indeed, require — risk. But they want that risk to be quantifiable, understandable, and manageable.  

But if that were true, one might conclude that bankers would favor Vice President Kamala Harris in the 2024 election. In terms of banking policy, the expectation is that she would represent another four years of the general regulatory agenda that the Biden administration laid out over the past four years — an agenda that banks have very much opposed, but that nonetheless exists within a mutually understood framework of regulation and litigation. Banks can sue against rules they don't like, and they can win (sometimes).

By contrast, the promise of former President Donald Trump's campaign seems to be more about proactively tearing down the governmental establishment that had foiled him in his first term, thereby consolidating power and using that power to get things done. Railing against government waste and federal power is not a novel idea — indeed, it may be one of our earliest ideas — but the idea of broadly realigning the federal civil service to be personally loyal to the president is a radical strain of that notion that would necessarily yield unpredictable results.

That isn't how bankers seem to be viewing the election — at least the ones who read these pages. In a September reader poll, American Banker found that a majority of respondents favored a Trump re-election, even as a majority thought that Harris would ultimately prevail. That was in September, of course, and things may very well have changed in terms of who bankers think will win. But despite the potential for unpredictability, bankers still want Trump back.

That is because bankers can rely on Trump to ball up all of the regulations that the Biden administration has put forward and throw them in the trash. To be sure, some of those rules have been expansive in their scope and others decidedly half-cocked in their execution, and the ones that are ripe for litigation have been challenged already. But it would be much easier for banks if they would all just go away, and Trump seems like the candidate who would do precisely that.

But Trump's broad appeal is that he is not a creature of the establishment — he is an anti-politician who has come to challenge the establishment in retaliation for the wrong that the establishment has inflicted on him personally and his supporters generally. Consolidating power can be seen as a means to that end — clearing the roadblocks to, say, cutting the federal budget by some $2 trillion entails breaking some eggs, or at least replacing the eggs who would object to being broken with eggs that won't.

But consolidating federal power for the purpose of cutting the establishment down to size should give banks pause, because they are also part of the establishment. Banking is a highly regulated industry, and that cuts both ways — or at least it should. Being a bank means you are beholden to federal and state supervisors to approve or at least not object to almost everything you do, and in exchange for that considerable burden you get deposit insurance, access to the Federal Reserve's payments system and discount window, and a burden of entry that keeps your competition relatively limited. 

What if a president determined to take down the establishment decides to favor cryptocurrency or decentralized finance — technologies designed to cut out banks as financial intermediaries, operating in an unregulated space that automatically confers a lower cost structure than banks enjoy? Or if that president decided you have to make loans to companies you would otherwise not want to make loans to? Or decides that they should have more of a personal role — either directly or through appointments — in setting federal interest rates?

We don't know, because those things haven't happened yet, and maybe they won't happen. But if we're changing the game, we're also changing our ability to know whether you're winning or losing — and that's a risk that is really hard to hedge.

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