Biden’s banking to-do list: Pandemic relief, GSE reform, regulatory hires

WASHINGTON — Joe Biden, who was sworn in as president Wednesday, faces an array of difficult decisions on financial policy, including what kind of fiscal stimulus is needed to jumpstart an economy ravaged by the coronavirus pandemic.

Although Biden has a number of executive orders planned and nominees awaiting confirmation in the Senate, his administration is not expected to move quickly to overturn some of the financial deregulation the banking industry has enjoyed during the four years of the Trump administration.

Instead, he is expected to focus on the COVID-19 pandemic, with an ambitious stimulus package that includes aid to small businesses.

But in the not-too-distant future the administration faces personnel and policy decisions concerning the housing finance system, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.

Here are the major financial policy issues Biden will have to address at the beginning of his term:

Pass new round of pandemic relief

One of Biden’s top priorities will be to pass a $1.9 trillion stimulus package his team has called the American Rescue Plan, following up on previous efforts to boost economic sectors that have struggled to stay afloat during the coronavirus pandemic.

While some details of the package are still unclear, the Biden transition team has said that it includes $1,400 direct payments to individuals and $15 billion in funding for a new small-business assistance program that would supplement the existing Paycheck Protection Program. Janet Yellen, Biden’s nominee for Treasury secretary, said in a congressional hearing Tuesday that the administration envisions that money being used to provide grants to small businesses, similar to PPP.

It remains to be seen if that program will be administered through the banking system, or if the Biden team is planning to distribute those funds using other means. But either way, financial institutions should be prepared for another influx of deposits as money is injected into the economy and consumers look for places to park their funds.

Determine next steps for housing finance reform

After making the most consequential steps toward reforming Fannie Mae and Freddie Mac since the mortgage giants entered into government conservatorship in 2008, the Trump administration has left the future of the companies to Biden. His administration will be charged with much of the unfinished business, including potentially restructuring the government’s ownership in the government-sponsored enterprises.

The Treasury Department and Federal Housing Finance Agency moved last week to allow Fannie and Freddie to retain significantly more earnings until the companies can align themselves with a post-conservatorship capital framework finalized in November. But Treasury Secretary Steven Mnuchin and FHFA Director Mark Calabria failed to reach an agreement on how to resolve the government’s stake in the companies, making it more difficult for the GSEs to build outside capital.

The Biden administration will need to decide if they wish to follow down the path set forward by Mnuchin and Calabria or move in a different direction. Many Democratic lawmakers and some trade groups have proposed transforming the GSEs into government utilities, for example.

The Supreme Court is also expected to rule on a case this spring on the leadership structure of the FHFA and the legality of an agreement that at one time required Fannie and Freddie to deliver nearly all their profits to the Treasury. Some have speculated that the outcome of that case could grant Biden the ability to fire Calabria and nominate a director of his own choosing, which would give the new administration much more power to determine the fate of the GSEs.

Finalize appointments for Treasury secretary, bank regulators

Biden’s team of financial regulators is beginning to take shape, but a handful of outstanding spots left to be filled and an unexpected Democratic majority in the Senate could ultimately reshape the policy approach his administration takes in the months ahead.

Before Democrats won a pair of runoff elections in Georgia, Biden’s first cabinet picks were a carousel of well-credentialed moderates (picked partly in the hopes they could survive a Republican-controlled Senate).

But a Democratic Senate will make it more feasible for Biden to tap forceful consumer advocates to take high-profile regulatory positions after four years of light-touch enforcement and deregulation.

The first priority is getting Yellen confirmed at Treasury. The administration then will likely look to fill leadership vacancies at the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency.

Outside the OCC and CFPB, it will take time for the Biden administration to appoint the leaders of other financial agencies. At the Federal Deposit Insurance Corp., Chair Jelena McWilliams has said she intends to serve her full term, which runs until June 2023. At the Federal Reserve, Chairman Jerome Powell’s term expires in early 2022, and Randal Quarles’s term as vice chair of supervision won’t expire until in October 2021.

Chart path forward for CFPB

After Kathy Kraninger stepped down as head of the CFPB on Wednesday, President Biden is free to select an acting director while his nominee to run the agency permanently, Rohit Chopra, awaits confirmation.

If he is confirmed, Chopra is expected to hit the ground running at the CFPB by quickly undoing Trump administration policies and moving aggressively to protect consumers during the pandemic.

Chopra could move to reverse the bureau’s payday lending rule, reopen its recent debt collection rulemakings and focus on student lending issues by working with the Department of Education and Congress.

He is also expected to reinstate the CFPB’s Fair Lending Office, which was stripped of enforcement power under former acting CFPB Director Mick Mulvaney. Enforcement is likely to boomerang back to a top priority for bureau leadership, as it had been under former CFPB Director Richard Cordray.

Chart path forward for OCC

The Biden administration will also have to fill a leadership vacancy atop the Office of the Comptroller of the Currency after former Comptroller Joseph Otting and his interim successor, Brian Brooks, both departed.

Candidates for the job reportedly include Michael Barr, a Treasury veteran who helped write the Dodd-Frank Act, and Mehrsa Baradaran, a law professor known for her work on narrowing the racial wealth gap and for being a postal banking advocate.

Whoever leads the OCC will likely consider overhauling or eliminating controversial Trump-era rules. The “fair access” regulation, which bars banks with assets of more than $100 billion from denying services to certain industries for political reasons, will likely be targeted, as will Otting's controversial revamp of the Community Reinvestment Act.