The Banking & Payments Show: How a Trump administration might impact the banking industry

In today’s episode of The Banking & Payments Show podcast, we talk about the most (and least) impactful ways that the new Trump administration might impact the banking sector, and the unintended consequences on mortgage rates and the mortgage industry if tariffs raise the cost of consumer goods and construction materials. Join the discussion with host and Head of Business Development, Rob Rubin, economics correspondent at Politico, Victoria Guida, and our Principal Analyst, Tiffani Montez.

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Episode Transcript:

Rob Rubin (00:00):

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(00:25):

Hello everyone, and welcome to the Banking and Payment Show, A Behind the Numbers podcast from EMARKETER, sponsored by LiveRamp. Today is December 10th, 2024. I'm Rob Rubin, head of business development at EMARKETER and your host. Today, we're joined by principal analyst Tiffany Montes and Politico Economics correspondent Victoria Guido. Hi Tiffani. Hi Victoria.

Tiffani Montez (00:50):

Hi there.

Victoria Guida (00:51):

Hey.

Rob Rubin (00:52):

Tiffani, I'm so excited to have you back on the show. And welcome, Victoria, this is your first time.

Victoria Guida (00:59):

Excited to be here.

Rob Rubin (01:00):

Yeah, because it's the first time in the show I want to ask you a few questions for the audience to get to know you. So what are you binge-watching right now?

Victoria Guida (01:13):

Well, I recently started Only Murders In The Building. I finished the first season.

Rob Rubin (01:19):

That's got a big backbench, so that's a good one to choose.

Victoria Guida (01:21):

Yeah, yeah, exactly. I've only watched the first season, so no spoilers, but enjoying that so far.

Rob Rubin (01:28):

All right, that's an excellent show. And I think I'm a couple of, I'm behind on the last season, so now I have something to watch.

Tiffani Montez (01:36):

I'm going to actually write this down because I have a very long plane ride from coast to coast next week, and I'm always looking for something that's going to hold my attention for five-plus hours. So thank you.

Rob Rubin (01:46):

Yeah, that's a good one.

Victoria Guida (01:48):

That's good. Yeah.

Rob Rubin (01:49):

So today's subject is how the banking industry is going to be impacted by the second Trump administration. It's clear that change is coming and I want to hear what you guys think about it. So what I'd like to do is just get right into our first segment today, the headlines. And in headlines, I pick an article related to the topic and we discuss it. But to prep for this episode, I Googled the topic second Trump administration's impact on the banking sector. And I realized that this is not a novel topic, that there's a lot written about this right now and it's popular. And so what I did is I polled these articles and I found that there's six generalized categories of where this is going to be impactful or the new Trump administration will be impactful from what the pundits are saying.

(02:42):

And I wanted to read the six and just get your feedback on it and see if is this where they're going to be impactful, which one will be the most and that sort of thing. So the first is changes to bank capital and liquidity requirements. A lot has been written about that and how that might change and the impact on large institutions versus small institutions. Certainly, a lot are expecting a less assertive enforcement of regulations and even deregulation. He's already said that for every new regulation he creates, he's going to get rid of 10. Support for non-traditional charters, which is a very pro-fintech thing. But that's been written about. Quite a bit of stuff written about crypto, the second Trump administration being pro-crypto. The fifth one is an increase in M&A activity. And then an ESG backlash. I even think that Don Jr. is working for an anti-ESG venture fund. So I can imagine there will be an ESG backlash and perhaps that would relate to an increase in fossil fuel funding and lending rather. So Victoria, is this a good list?

Victoria Guida (03:57):

I'd say it's a pretty good list. Definitely there's going to be less aggressive enforcement, which is not only a party change, but also I think in the wake of Silicon Valley Bank and a couple of the other banks that collapsed, we really saw enforcement have a big uptick in its ferocity. And I think that a new administration will definitely change that tone. We don't know yet who will actually have the bank regulatory jobs. Michael Barr will still have his term at the Federal Reserve as the regulatories are over there until July 2026. There is a question as to whether President Trump might try to remove him before then, but that's a whole legal rabbit hole. And so there might be some deadlock among the agencies because we'll get a Republican FDIC chair and we'll get a Republican comptroller, but Barr will probably stay there over a year.

(04:51):

And so that might limit some of the changes. But definitely I think long-term and directionally it will be a big shift. The only other thing I'd note is you mentioned the support for non-traditional charters. That I'm not sure of because that was an interesting, actually a bipartisan thing where you might remember that Tom Curry, who was the comptroller under President Obama, was the one who came up with this limited charter for fintechs and then that was taken up by his Republican successors. But then the courts overturned it. And then Brian Brooks, who was the final acting comptroller under Trump, tried to revive it as a payments charter. But there are a lot of legal questions around that. And so it depends on who is comptroller, but I'm not certain whether that will come back or not. But we'll see.

Rob Rubin (05:43):

Okay, so there's one on the list that maybe you're not sure is going to be that impactful, but the other stuff, certainly on the regulatory side. And in fact I was reading this article just the other day about the fact that now that we're in a lame duck situation with the current administration and they know there's going to be new bosses, there's actually nothing going on right now on the regulatory side. It's a pause.

Victoria Guida (06:07):

Yeah, they were at a hearing recently where they said no new rules. Now that doesn't apply to the CFPB. The CFPB has actually been doing a lot of stuff, but when it comes to the prudential regulators, they haven't been doing that.

Rob Rubin (06:20):

Tiffani, what do you think of the list?

Tiffani Montez (06:27):

I think the list is good. I think the thing that it makes me think of, as I was listening to both of you talk right now, is what happens with open banking and 1033. There was lots of, we'll call it excitement about this in October, a lot of backlash from a certain respect as well. And will this actually stall progress on this or will it actually be peeled back in any way, shape, or form? And what should financial institutions do in the interim?

Rob Rubin (06:54):

What do you think?

Victoria Guida (06:55):

Yeah, that's a really interesting regulatory issue because typically when you see things out of the CFPB under a democratic administration, it tends to be something that industry doesn't like. But in this case, it's actually industry versus industry where the banks are a little bit... Well, the big banks are actually suing over it. But I think that the banks overall are skeptical of the rule, whereas the fintech see this as an opportunity to get brought into the regulatory fold, have more of a seat at the table when it comes to negotiating data standards. And we've actually, we saw some support from, for example, Republicans. Patrick McHenry, who's currently the chair of the House Financial Services Committee. He's about to retire.

Rob Rubin (07:39):

He's a retire... Right.

Victoria Guida (07:41):

He was pro this rule and I think that you see some Republicans support pro fintech kind of support for this rule. And so that's a big question mark. I don't think that that's something that's guaranteed to be rolled back under a Republican administration, but we don't know who's going to be CFPB director.

Rob Rubin (08:00):

X is trying to become a payments platform. And Elon Musk has a lot of influence with Trump, so I wonder what role that could play.

Tiffani Montez (08:10):

He didn't already do that? He said he was going to do that by 2000... This year. We've got a couple of days left here. It's going to happen. He's going to be a super app.

Rob Rubin (08:21):

100%.

Victoria Guida (08:24):

I think he's got some other things on his mind.

Tiffani Montez (08:27):

Maybe he's going to table that for another year.

Rob Rubin (08:32):

I think we could probably spend hours talking about how the banking industry might be impacted by a second Trump administration. And I wanted to get to something that we haven't talked about yet. So I want to jump to it in our second segment called Story By Numbers.

Tiffani Montez (08:48):

Can I actually take a moment here though because I think this is really important? And I can't believe that you didn't latch on to the increased M&A activity because this is one that you've been trying to convince me of for years that there's going to be consolidation in the market.

Rob Rubin (09:07):

Yeah, you're right.

Tiffani Montez (09:10):

This is your chance.

Rob Rubin (09:11):

Victoria, I'm sure you haven't been listening to all 50 previous episodes of the Banking and Payment Show. Whenever I get an opportunity to point to who's going to win, the big banks or the small banks, I always pick the big banks. And there's 4,500 banks in the United States right now. 10 years ago it was probably double that. I just can't come up in my head with a reason why there would be... Even 500 seems like a big number to me. So I keep saying that there's going to be a massive consolidation. So do you think this, a Trump administration, is going to accelerate that?

Victoria Guida (09:52):

I definitely think it will accelerate versus the pace that it's at now. I don't know that there's going to be some mass merger events, but definitely I think that the regulators will likely be much more open to mergers than we've seen under the current administration. It also just seems like consolidation has been the trend for the past few decades, and so I feel like that's a pretty safe bet that that's going to continue. In terms of where we end up, that's the funny thing about this, right?

(10:20):

Is we got rid of the barriers between interstate banking and we've basically been seeing the market adjust over time to how many banks it wants to have. And obviously different banks play different roles. There's now a big question about regional banks because they don't necessarily have the same relationship lending that small banks do, but they don't necessarily have the same economy of scale as big banks. So the question is what role are regional banks going to play in the future? I think that's a big question. I think we could see more consolidation there. I don't know where we're headed. You might know where we're headed, but we'll see.

Rob Rubin (11:01):

I guess the reason why I didn't bring it up as a thing to bring up is more is I just think that it's a constant thing. I don't know that it's going to change. I assume if the regulators decide that they're going to let more deals come through, they won't put up as many hurdles. Or if they're giving an indication that there won't be as many hurdles if you want to make that merger, then there might be activity. I wonder if before they do mergers, they have conversations with regulators about whether that would be a big hurdle or a little hurdle.

Victoria Guida (11:35):

Yeah, they do. Before banks announce a proposed merger, they float it by the regulators. They don't get a green light, but they basically try and make sure that they're not going to get a red light.

Rob Rubin (11:50):

A red light, right.

Tiffani Montez (11:50):

And I think I saw somewhere that they actually, that process of going through and saying a final yes and a final no has been taking longer and there's some expectation that maybe that could actually occur faster. And maybe as a result that may mean that there's more as a result of the process being faster.

Victoria Guida (12:09):

Yeah. No, I think that makes a lot of sense.

Rob Rubin (12:12):

I think you can predict small banks, this is an aside, based on the age of the management team, in terms of if they're going to get acquired or not because I do think a lot of banks are... They want to pay out. The executives in there want to get a payday, so they want to sell when the opportunity is good for them to do so. If the economy and things look good for them, they're going to want to sell. If they think that it would look better if I hold, then they're going to hold. So that's I think related to the politics of it, but unrelated in a way, too. Can we do the next segment now, Tiffani? Are we good?

Tiffani Montez (13:00):

Yes, Rob, I've gotten all of my energy out.

Rob Rubin (13:03):

I want to jump to Story By Numbers.

(13:16):

In Story By Numbers, I pick a number or two related to the topic and we discuss it. And today my number is 7.29% and that's the average thirty-year fixed mortgage rate in the US, when I checked. And I'm sure a second Trump administration would like to see this number go down and would like to see the housing and construction industries heat up. So I want to discuss something which maybe is a little counterintuitive, but I want to discuss tariffs. And if the proposed increases in tariffs, what impact could that actually have on the mortgage and construction industry specifically? If they raise the cost of consumer goods and construction materials, what will be the unintended consequences? What do you think?

Victoria Guida (14:07):

Yeah, I think that that is one of the things that factors into that number. It's always hard to know exactly. We could have a mortgage lender on here and tell you how they break it down. But it definitely is tied, in part, to the ten-year and the thirty-year, and all of these longer-term yields that we've seen go up, stay higher than you might've expected. And that's partially a result of expectations about tariffs, what they will mean for prices, what they will mean for growth.

Rob Rubin (14:37):

But then there's also stuff like if consumer prices go up and for everyday items, you might see credit card delinquencies go up. And credit card delinquencies could be a factor that weigh into the way they price their mortgages because of what they're using. In other words, the economy just starts to soften up. It changes how mortgages are going to get priced.

Victoria Guida (15:05):

Yeah, that's a second-, third-order thing that makes some sense, too. The other thing that tariffs could affect is just the cost of building new housing. We know that we don't have enough housing and tariffs will impact things on lumber where we already have higher tariffs. And all of the things that go into making a house, if it's garage doors or whatever.

Rob Rubin (15:32):

Refrigerators, dishwashers.

Tiffani Montez (15:35):

Remodeling,

Rob Rubin (15:36):

All those things have parts. What's that?

Tiffani Montez (15:39):

Remodeling are major home repairs that are critical to being able to live in that home become an issue too for the average consumer that doesn't have a way to pay for emergencies.

Victoria Guida (15:52):

Yeah, so that all affects the availability of housing, which affects the pricing of housing. So yeah, I definitely think that that is an extremely relevant factor in the housing market right now.

Rob Rubin (16:03):

So will it change the interest rate? To what extent will tariffs impact the, because I was trying to make this connection, my number was 7.29%, so we can talk about it at a high level. Do we think that interest rates could be affected by tariffs?

Victoria Guida (16:21):

Well, I was making the point that I think that longer term rates, in general, are going up because of tariffs. I'm not totally sure whether the specific... Because you're making a totally relevant point, that when people are spending more money on tariffs, they have less money to spend on everything else.

Rob Rubin (16:41):

Right.

Victoria Guida (16:41):

Although that should slow growth, which could lead to lower rates depending on how... You think about what happened in 2019 where the Fed actually lowered rates and it was partially because the economy was slowing because of the trade wars. So that could lead to lower rates technically, but it depends on how it all shakes out. And the Fed is not really making a judgment call yet as to whether rates will go up or down because of tariffs.

Rob Rubin (17:06):

I think it's another aside. One of the interesting things about the housing market and rates is that people who are living in a house with a really good mortgage rate can't afford to leave or upgrade their house because the mortgage rates are so much higher. So they can't get rid of the mortgage that they have and spend a $100,000 more, $50,000 more in a house because the mortgage rate is so much higher, they won't be able to afford it. If rates go down it could shake out a lot of the people who want to upgrade their house and move, too. But at the same time, tariffs could be working against that.

Victoria Guida (17:45):

Yeah. Tiffani, I don't know if you have... I'd be interested to hear what you think about that.

Tiffani Montez (17:49):

Yeah, if I think even about this a little more broadly, I think just tariffs is just one component of what is going to potentially impact the housing market. If we also start thinking about immigration and mass deportation, what does that do to the actual housing market in terms of, to your point that you mentioned earlier, building new homes or even remodeling homes or any of the things that we need to do to deal with being able to make sure that we've got enough houses for, affordable housing for people.

Rob Rubin (18:22):

I heard this interesting stat. I'm not sure if it's related, but it feels related. From 2008 to 2014, the Department of Homeland Security deported about a half a million undocumented immigrants through its secure communities program. They found that for every 100 migrant workers who were deported, nine fewer jobs existed for natives. They also found that native wages only fell slightly. The article sources from The Atlantic.

Tiffani Montez (18:52):

Yeah, good point. Yep.

Victoria Guida (18:54):

Yeah, no, I mean the economy is not fixed, right? It can grow or shrink.

Rob Rubin (19:01):

So I don't think we came to a really, a good sharp... I think we have a lot of good reasons why tariffs are going to have an impact on the industry overall. I don't know that we can point directly to a causal relationship between tariffs and interest rates on mortgages.

Tiffani Montez (19:19):

I think there's too many other dynamics that go on that impact.

Rob Rubin (19:22):

There's a lot of other...

Victoria Guida (19:24):

I think it's a factor. I don't think it's irrelevant to the rate.

Rob Rubin (19:29):

If they didn't, you could argue if they weren't there because rates have been trending downward now, if we didn't have tariffs, rates might still continue to go down unless the economy's too hot and then they don't want it to lower them anymore. At the same time, so if you took tariffs out, you might continue to see a downward trend. But if you put tariffs in the Fed might actually hold interest rates steady as well as a reaction to it, to increase consumer costs.

Victoria Guida (20:01):

Right. Well, and also the Fed cutting rates is not guaranteed to have a one-for-one relationship with mortgages. We've seen the fed cut rates and mortgage rates.

Rob Rubin (20:10):

And they have not gone back up. Why is that? Is it anticipation of a new administration? Are they hedging?

Victoria Guida (20:19):

So I do think that part of it as relates to the move up in long-term rates. You also hear people talk about the way that the mortgage-backed securities market works where because of the oddness of mortgages where when rates go down, it means that people are more likely to refinance, which means that then they pay off their mortgage, and then that affects the pricing of the bond. And so that is also probably a factor in why rates have gone up. But yeah, I think that policy expectations and growth expectations, because growth has been much better than people expected and people now expect it to be higher than they originally thought.

Rob Rubin (20:58):

There is a lot of uncertainty here and nobody has the answer, which is why there are so many articles being written about the subject. It's really a fascinating topic. And I want to thank both Victoria and Tiffani for joining me today to have this conversation. Thank you so much.

Tiffani Montez (21:17):

Thank you. It was great.

Victoria Guida (21:17):

Thank you.

Rob Rubin (21:18):

And thanks to everyone for listening to the Banking and Payment Show, an EMARKETER podcast made possible by LiveRamp. Also, thank you to our editor, Lance. Our next episode will be January 14th, so be sure to check it out. See you then. Thanks, Victoria.

Victoria Guida (21:34):

Thank you.

Rob Rubin (21:35):

I really appreciate it. Tiffani, as always. Thank you.

Tiffani Montez (21:38):

Yep. It was great having being on the episode with both of you. Thank you so much.

Rob Rubin (21:42):

Awesome. Have a great day everyone.