Financial Services and the Midterms​

Summary

• The financial services sector has benefited from political tailwinds during the first two years of President Trump's term.
• A Democratic win in the midterm elections is not expected to create a significant headwind for the industry, though the following breeze may be weaker.
• Some headline risk is expected for Global Systemically Important Banks (GSIBs), while policy changes are expected to be few.
• The credit card industry faces an increased risk regarding potential policy changes.
• The base case forecast predicts a Democratic flip of the House while Republicans retain a slim advantage in the Senate.
• Democrats lead polls in enough Senate races to win, but several leads are within the margin of error.
• A Democratic Congress would have limited leverage to change financial policies due to the Senate filibuster, the Republican White House, and the President's veto power.
• Democratic-run committees could conduct investigations that slow the regulatory process but not stop the Trump administration's agenda.
• Representative Maxine Waters is likely to reclaim the chair of the House Financial Services Committee with a focus on housing.
• Senator Elizabeth Warren is in line to become the Senate Banking Committee chair, which could lead to a heavy focus on Wall Street banks.
• Former Senator Sherrod Brown could reclaim the Senate Banking Committee chairmanship if he wins his seat, potentially producing fewer negative headlines for the banking industry.
• Democrats are likely to prioritize investigations into cryptocurrency ties to President Trump, making the passage of a revised CLARITY Act unlikely.
• Inquiries into the Jeffrey Epstein scandal could put large banks in a negative light if they had relationships with Epstein.
• Democrats might be open to changes in deposit insurance, which could benefit mid-sized banks.
• A one-year cap on credit card interest rates is a possible policy exception, with a 20% cap having a better chance of passing than a 10% cap.
• The Credit Card Competition Act is expected to reemerge in 2027 if it does not pass during the lame duck session.
• Congressional Democrats are likely to push housing legislation emphasizing demand-side policies, FHA footprint expansion, and down-payment assistance programs.
• Hearings regarding the SEC's deregulatory agenda and enforcement policies are possible but not expected to be a top priority.
• If Governor Jerome Powell does not resign from the Federal Reserve Board by the end of the year and the Senate flips, his seat may not be filled before the next presidential election.
• Democrats need to gain only three net seats to retake the House, and historical trends suggest they are well-positioned to do so.
• Stifel estimates a 40-45% chance of Democrats winning the Senate, contrasting with Kalshi's 64% probability.
• Many Republican seats under defense voted for Trump by double-digit margins in 2024, which could help Republicans retain the Senate.