Financial sector under new Trump administration taking shape

By Doug Bailey

Excitement and conjecture are echoing in the halls of power in Washington as the new presidential term begins. The administration's plans for the financial services sector over the next four years will soon be revealed with the announcement of key appointments across financial regulatory organizations. During a recent debate on Capitol Hill, politicians and industry insiders discussed the consequences.

Quick nominations and confirmations are crucial, according to Kevin Edgar, former chief counsel on the house committee on financial services and a parter of government policy at the Washington D. C law firm BakerHostetler. "The earlier you can get someone nominated, the earlier you can get them confirmed, and then the earlier they can get to work," he said.

In contrast to lengthier procedures in earlier transitions, Edgar emphasized the new administration's vigorous drive to fill important positions in the financial sector. For instance, Jay Clayton was legally nominated on Inauguration Day but was not appointed SEC Chair during President Trump's first term until January 4, 2017. We might see their names much sooner this time, he said.

Reasons for urgency

The need to assess the regulatory environment of the previous four years, establish new goals, and deal with impending legislative deadlines are some of the reasons for the urgency. Interest has been aroused by the appointment of Treasury Secretary nominee Scott Besson, whose relationship with the president is still unknown.

"It’s uncertain what their relationship is," Edgar said. "But this choice will undoubtedly influence subsequent nominations, especially for independent agencies like the SEC, CFPB, and FDIC."

Former congressman Peter Roskam, and leader of the federal policy team at BakerHostetler, called attention to a notable change in the president's appointment-making process, including those for positions impacting the financial sector.

"Unlike his first term, these are individuals with whom the president has personal connections and confidence," he said. Given the president's background in finance, Roskam pointed out that this change may affect the focus of financial policy.

Growing populist attitudes

The dynamics of the GOP are changing at the legislative level. Edgar brought attention to the party's growing populist attitudes, which may have an impact on financial supervision. "The GOP is no longer just the Wall Street Journal editorial page," he said. This attitude might encourage support for local firms and community banks while raising questions about big financial institutions.

Addressing regulatory priorities and vacancies impacting the financial sector will be crucial in the coming months. Given the commission's vacancies and Gary Gensler's imminent resignation as SEC Chair, nominations will be made right away. According to Edgar, acting chairs often refocus agency priorities. According to him, "An acting chair can redirect staff to projects or provide clearer guidance," underscoring the possibility of a policy change.

Furthermore, the Congressional Review Act (CRA) is a potent instrument for repealing late-term rules from the previous government. Edgar, who previously oversaw CRA motions, highlighted the importance of the procedure: "If Congress disapproves a rule, agencies must propose a substantially different version—no minor tweaks allowed."

Edgar also mentioned the new administration's possible financial sector regulatory relief, especially for small enterprises. "There will be a focus on modernizing securities laws to facilitate capital formation for small companies," he said. He did, however, stress that crucial protections, like as laws against money laundering, will not change. "Rules that preserve financial system integrity aren’t on the chopping block."

'Tax Armageddon'

"Tax Armageddon," the impending expiration of important tax laws in 2025, heightens the necessity of Treasury appointments. Roskam emphasized the administration's pressure to take decisive action by highlighting campaign pledges to refrain from taxing Social Security, tips, and other items. Edgar foresaw a busy Senate Finance Committee: "You want core cabinet members confirmed in that first week to address pressing tax and financial issues."

Edgar warned against being overconfident, even though the policies of the new administration might present chances for development. He cautioned, "Letters will come," alluding to possible investigations by congressional oversight organizations. Aggressive supervision will continue under leaders like Rep. Maxine Waters and Sen. Elizabeth Warren, the next ranking member of the Banking Committee. "There will be dueling oversight—examining both the private sector and the administration’s actions."

The Financial Stability Oversight Council's (FSOC) contentious designation of non-bank businesses as systemically important may be revisited by lawmakers in addition to ongoing probes. Edgar proposed that this strategy be put on hold. "This administration is unlikely to favor adding more government oversight onto businesses," he said.

The financial services industry is at a turning point. Oversight and scrutiny will continue even when legislative goals and regulatory recalibrations may create opportunities. "It’s not open field running." Edgar summed up the sector’s issue in this way: "The industry must remain vigilant against inquiries and regulatory pivots."

Stakeholders in the financial services industry will have to negotiate a changing environment characterized by opportunity, oversight, and reform as the Senate gets ready for a frenzy of confirmation hearings and legislative activity in the next year. The scramble to adapt is already underway for both corporate executives and Washington insiders.