US Elections – For every new regulation we’ll scrap two, no, ten!

This is the final piece in a trilogy of weekly election pieces until the presidential election in November where we look at the impact of the candidates’ proposals beyond the headline macro-figures. In the first piece we discussed the extent to which the candidates plan to respect existing institutions, such as the Fed, and the three branches of government. In the second piece we discussed the causes and (lack of proposed) remedies to the rapidly increasing US debt level. In this final piece we will look at the candidates’ plans regarding financial, environmental and tech regulation, such as AI and market power of big-tech.

Financial regulation

US financial regulation is largely based on the response to the 2008 great financial crisis. The Obama administration put in place the Dodd-Frank act, which created the Consumer Financial Protection Bureau, the Volcker rule - which prohibits banks from doing proprietary trading - and importantly, it enhanced the regulation of financial institutions. Systemic institutions had to maintain higher capital reserves, undergo stress tests, and submit ‘living wills.’ In 2018, Dodd-Frank was significantly curtailed by the Trump administration, by raising the threshold of applicability from banks with at least $50bn in assets to those exceeding $250bn, and easing the restrictions under the Volcker rule. The changes were part of a broader effort to reduce regulatory burdens on financial institutions, with the aim of promoting economic growth and increasing lending.

Then, in early 2023, starting with Silicon Valley Bank, multiple banks failed. Two of those banks would have faced stronger regulation under the original Dodd-Frank act, but it is not clear that these failures would have been averted had it still been in place. Regardless, it further pushed the major financial regulators to put forth a proposal in August 2023 to bring US financial regulation in line with international standards, the Basel Endgame. The proposal faced strong opposition, from banks, who threatened to sue the regulators, but also from the government, with the Republican chair of the house financial services committee threatening the Fed would face the Congressional Review Act, which gives Congress the power to overturn rules issued by federal agencies.

Following the initial proposal’s failure, the requirements were significantly toned down in an updated proposal in September this year. While the regulations would initially apply to all banks exceeding $100bn in assets, a large part now no longer applies to banks with less than $250bn in assets. The updated plan will raise big banks’ capital by 9% compared to the original 19%, and only 3 to 4% for those mid-tier banks. For the six largest banks this translates into savings of roughly $100bn. Capital requirements related to operational risks and mortgages were also reduced. The plan is currently again under review, which means that the updated proposal will not be implemented before the elections. As a result, in case of a Trump victory, it might be weakened further.

Climate regulation

Trump made significant deregulatory efforts during his presidency. He withdrew from the 2015 Paris agreement, where countries committed to reducing greenhouse gas emissions and limited global warming to 2 degrees. He rolled back Obama’s Clean Power Plan, putting in place the Affordable Clean Energy rule, which gave states more authority and reduced the stringency of emissions targets for power plants. He also relaxed regulations aimed at reducing methane emissions from oil and gas operations. He relaxed fuel efficiency standards for new vehicles, freezing the requirement at 2020 levels through 2026. Overall, he rolled back significant parts of Obama-era climate regulation and promoted fossil fuels, with the aim of reducing regulatory burdens on industry.

The day Biden and Harris came into office, Biden rejoined the Paris agreement and started the process of restoring the climate regulations rolled back under Trump. The efforts were further strengthened by various climate-related executive orders, including a pause on new oil and gas leases on federal land and the establishment of a National Climate Task force. The administration implemented the Inflation Reduction Act (IRA), where around half of the $739bn budget is related to climate spending, aiming to accelerate the transition to a clean energy economy.

Harris would certainly continue this general path. She often markets herself as the tie-breaking vote for the IRA. Before her role as vice president, she held strong climate conviction. She launched an investigation into big oil as attorney general. As primary candidate in 2020, Harris stated she wanted to ban fracking, something she has changed her stance on in this campaign. The Biden administration cancelled Trump’s oil and gas leases in Alaska’s National Wildlife refuge, but at the same time, approving more gas and oil leases in than Trump in other parts of the country, leading to an overall increase in production. Harris has not laid out a comprehensive climate and energy plan, but the democratic platform shows a continuation of Biden’s policy, with a strong role for the IRA, and further funding for climate agencies and research.

Trump continues to not see the threat of climate change. He promises to roll back the climate-related expenditures in the IRA. He has vowed to unlock new lands for oil and gas drilling, under the motto of ‘drill, baby, drill.’ He has also signaled that he would reduce funding for environmental agencies, as ‘they make it impossible to do anything.’ There’s a similar lack of explicit plans, but the 2024 republican platform proposes to unleash American Energy, and make the country the dominant energy producer, based on the amount of ‘liquid gold under their feet.’ Trump has claimed this increase in supply will reduce energy costs by 50-70%, putting inflation to a halt.

Tech regulation

The Biden administration started a crackdown on the tech giants, from both an antitrust and a regulation perspective. The Justice department sued Alphabet for acting on its monopoly in search and advertising. The DOJ sued Apple on antitrust grounds. The FTC has cases against Meta and Amazon. One of the most important things on the administration’s agenda was an executive order on public oversight and regulation of AI, where the deliverables and recommendations are due at the end of this year.

Harris is likely to continue this agenda. She would likely push forth regulation around consumer protection and cyber security in the face of AI. In the 2020 presidential race, she opposed the idea of breaking up Google – rather suggesting improved regulations to ensure the American consumer’s privacy - but suggested we should have a serious look at a Facebook breakup, calling it an unregulated utility. At the same time, Harris’ California background means she has some close ties to big tech. A large part of her donations come from Silicon Valley’s tech elite, and she has been accused of being too lenient on big tech. Meanwhile, Trump has stated that he will reverse the AI executive order. During his presidency, he was however surprisingly strong in scrutinizing big Tech M&A deals, citing national security concerns. He also expressed interested in breaking up Big Tech, citing collusion concerns, not between the companies, but between the democrats and the companies. His current closeness to Elon Musk suggests he will have the opportunity to influence Trump’s tech policy. The basic premise is therefore likely based on not imposing stronger regulation, and potentially non-uniform treatment of big tech depending on personal preferences.

On the feasibility of regulation changes

As discussed in the previous pieces, the ability of either candidate to push through changes in legislation crucially depends on the outcome of the elections in the Senate and House of Representatives. The SEC, whose commissioners are appointed by the president on a rolling five-year basis may push through some financial regulation even without the congress approval. Beyond that, Trump’s proposal to expand the definition of political appointees (Schedule F), may have a large impact on regulation and enforcement in a variety of areas. The makeup of the supreme court might also make it difficult for, e.g. the SEC to push through changes in regulations.