With the results of the 2024 elections now in, the financial services industry is preparing for a new era of policy changes and regulatory shifts under Republican control of both the White House and Congress. The incoming administration’s pro-business stance signals a potential wave of deregulation, tax reforms, and changes in monetary policy that could reshape the landscape for banks, investment firms, and fintech companies. While the anticipated rollback of financial regulations may boost profitability and investor confidence, it also introduces new uncertainties, particularly in areas like consumer protection, digital assets, and climate-related disclosures. This article considers the key impacts of the election results on the financial services industry.
Regulatory and Compliance Changes
The Republican administration is expected to prioritize deregulation across the financial sector, aiming to reduce compliance burdens and stimulate economic growth. This may include rollbacks of certain Dodd-Frank Act compliance requirements for smaller banks, changes to Corporate Transparency Act (CTA) compliance or Beneficial Ownership Information (BOI) reporting requirements, and/or scaling back the role of the Consumer Financial Protection Bureau and reducing regulatory scrutiny for lenders. However, Jerome Powell’s term as Federal Reserve Chair runs until May 2026, and Powell has publicly stated that he will not resign, nor can the President fire him. This means any significant changes in Fed monetary policy may not occur immediately. Additionally, the dramatically increased national debt and rising borrowing costs could limit the Fed’s ability to reduce rates in the future. Of course, any potential deregulation actions carry potential risks and uncertainties, and financial services entities should be cautious of preemptively eliminating any safeguards that they currently have in place.
Tax Policy Implications
With Republican control of the White House and Congress, tax policy changes are likely to focus on reducing rates and extending provisions favorable to the financial sector. Some of the main Trump tax policy proposals include:
- Extending or making permanent some/all of the expiring TCJA provisions (i.e., bonus depreciation, qualified business income deduction, increased standard deduction, and SALT deductibility cap, and others)
- Lowering the corporate tax rate, individual income tax rates, and/or capital gains rates
- Preserving the increased estate tax and gift tax limits set by the TCJA
- Eliminating taxes on tipped wages, overtime, and Social Security payments
- Potentially expanding the child tax credit (mentioned by JD Vance on the campaign trail)
- Imposing tariffs (anywhere from 10% – 60%) on imports
Notably, the only proposed corporate tax rate reduction that Trump has publicly promulgated is a 15% rate for domestic manufacturers. While a broader corporate rate cut remains possible, the main impacts on banks will be a reduced tax burden for their customers—both businesses and individuals—due to the potential extension of TCJA provisions and the 15% corporate rate proposal. Additionally, Trump has already nominated two Republicans from the House for Administration jobs. These appointments, while likely from safe Republican districts, will temporarily reduce the Republican working majority in the House until special elections are held (which may take at least 60 days). This slim margin could affect the ability to push through a tax package swiftly, especially with the urgency to address the upcoming expiration of TCJA tax cuts.
Monetary Policy and Interest Rate Environment
The new administration’s appointments to the Federal Reserve Board could influence a shift in monetary policy, with potential impacts on interest rates and economic growth. The Republican-led Congress may have a goal of keeping inflation at bay, continuing the trend of higher interest rates. While this could increase net interest margins for banks, it may also dampen demand for loans and refinancing, affecting overall lending activity. However, with Powell remaining as Fed Chair, immediate shifts in monetary policy may be limited. Additionally, the increased national debt could constrain the Fed’s flexibility in reducing rates. Financial institutions should closely monitor fiscal policy developments to anticipate shifts in the macroeconomic environment.
Digital Assets and Fintech: A More Business-Friendly Approach
The financial services industry can expect some deregulation attempts toward digital assets and fintech innovations under the incoming administration. This may look like reduced barriers for digital asset firms and fintech startups, which does carry heightened volatility and legal risks in this ever-evolving cryptocurrency industry. While reduced regulatory pressure could spur growth in the digital assets sector, we will be watching for increased market volatility and the potential for legal challenges as the regulatory landscape evolves.
Consumer Protection and Lending Practices
Changes in consumer protection policies and lending standards are likely to impact credit availability, mortgage practices, and financial services for underserved populations. The Republicans have signaled a potential relaxation of mortgage lending rules to boost credit availability, supporting the housing market and increasing homeownership. Additionally, there may be reforms to retirement savings incentives that could affect the strategies and product offerings of financial advisors. The administration may also push for a shift away from environmental, social, and governance (ESG)-focused investment funds, reflecting a broader Republican preference for limiting federal influence on investment decisions. Notably, for SEC-regulated banks, current SEC Chair Gary Gensler has aggressively pursued a disclosure agenda on climate change, ESG, and other areas outside the SEC’s traditional purview. These efforts may be reversed or scaled back under a future pro-business SEC chair.
Market Dynamics and Investment Impacts
The Republican control of both the White House and Congress is expected to influence market sentiment, particularly in key industries like banking, energy, and defense. The pro-business stance of the new administration may drive positive investor sentiment, potentially leading to increased stock market activity. However, this optimism could be tempered by market volatility as investors react to new policies and the uncertainties surrounding regulatory changes. We will be keeping an eye on President-elect Trump’s tariff proposals, ranging from 10% to 60% tariffs on imports, and the potential ripple effects across the financial services sector, particularly for firms with significant exposure to global markets.
Conclusion
As we move into a new era of economic and regulatory changes, financial services firms must remain agile and proactive in their planning. The anticipated shifts in tax policy, regulatory oversight, and monetary policy will create both challenges and opportunities. Our team is here to help you navigate these changes, assess the risks, and develop tailored strategies to capitalize on emerging trends and safeguard your business in the evolving landscape!
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
