Is Obama Good for Banking?

We’re apolitical over here at Bank Innovation. No matter whom you voted for yesterday, we’re happy you are a part of Bank Innovation.

But politics aside, every banker should be asking the question this morning, is another term of President Barack Obama good for banking?

The answer is probably, especially when you couple it with Elizabeth Warren’s victory in Massachusetts.

Here’s what we think banking can expect in the second Obama term:

• Full Steam Ahead at the CFPB. While I suspect a Romney presidency wouldn’t have resulted in a complete unwinding of the  CFPB, you can expect the CFPB to remain in attack mode during Obama II. Will a second term mean Obama can be slightly less beholden to the political winds and let CFPB run freer? Unlikely. There’s only so much political capital that Obama will spend on the CFPB. Clearly, however, Elizabeth Warren will press for the staus quo at the CFPB.
• Maintenance of the Tax Code. I am not buying into the notion that Obama II will undermine the pro-banking tax provisions currently on the books, such as the mortgage deductible. Why go there? And for Republicans, is eliminating the mortgage deductible the fight they want to start? I doubt it.
• Community Banks Lose. Romney specifically wanted to ease the regulatory burden for community banks. That’s not going to happen now. To Romney, these requirements are an example of an overbearing federal government. For example, a Romney aide told the Christian Science Monitor during the campaign that small community banks “have taken the brunt of the overregulation.” The aide, speaking on background, said small banks don’t have the capability to deal with the cost and complexity of the law. “They are spending more on figuring out the rules and regulations versus lending to people,” he says. Expect no change in the regulatory framework for community banks under Obama.

The presumption behind the assessment that Obama will be “bad for banks,” centers on the notion that a robust regulatory framework hurts the financial services sector. But I am not convinced that that is indeed the case. We know that the Federal Reverse will maintain an accommodating monetary policy, and there is no indication that Obama II will do anything to undermine that. On the contrary, he has been Bush-esque when it comes to government spending to support the financial services sector.

So if you can get past the hardened stance on regulatory framework, I don’t see the banking sector being in any markedly worse shape at the end of the Obama II presidency than it is today. And maybe, just maybe, the economy will continue to improve, which would help banks continue to heal from the credit crisis.