Analyzing the Election: The Impact on Banking

So, given the results of the Presidential and Congressional elections, what does a Democratic federal government mean to the U.S. banking industry?

In an exclusive interview, Eve Weber, analyst with the Aite Group, a Boston-based financial services consultancy, discusses:

What the election means short- and long-term to the banking industry;
How regulatory agencies may be changed by the new Administration;
New regulations that may be coming down the pike.

Weber focuses on the regulatory and compliance issues facing financial institutions. Recent research has focused on anti-money laundering, risk management, fraud, and bank regulation at the federal and state levels. She brings to the position research and analytical skills gained in five years as a practicing attorney, and has helped Aite Group clients respond to major regulatory initiatives, such as Sarbanes-Oxley, the Bank Secrecy Act, the USA PATRIOT Act and new bankruptcy laws.

Weber has presented before the BITS Fraud Steering Committee and at user conferences for Metavante and Postilion. She has been quoted in leading press outlets, such as Associated Press, USA Today, The Boston Globe, and The Atlanta Journal-Constitution on mortgage industry regulation, and more broadly in trade publications, such as American Banker and The Greensheet.

TOM FIELD: Hi, this is Tom Field, Editorial Director with Information Security Media Group. Today we are talking about the 2008 Presidential Election results. I'm privileged to be speaking with Eva Weber, Analyst with the Aite Group. In her role, Eva specializes in regulatory and compliance issues for banks. Eva, thanks so much for joining me today.

EVA WEBER: My pleasure.

FIELD: So it's the day after. We have a Democratic President-Elect and a Democratic Congress. In your opinion, what does this mean to the banking industry?

WEBER: Well, I think this move will certainly signal I guess a heightened focus on consumer protection issues regarding the retail banking industry, so issues around credit cards, around lending, you know, particularly with the market crisis I think that Congress and the President-Elect will be looking to balance what they have been doing for financial institutions with something that they can also do for consumers.

FIELD: Now as you know, yesterday on Election Day we saw quite a bounce in the market, and the market has been all over the place in recent weeks. What kind of a short-term impact do you expect to see in the volatile marketplace?

WEBER: I think there will probably be a positive effect in the short-term at least. You know we have a new regime coming in, and there is new hope to really do some work on regulations, on issues that have long been debated in Congress. So I think that this will have a positive effect.

FIELD: Eva, one of the big topics today has been President-Elect Obama's potential cabinet appointees and of course a big one would be Treasury Secretary. How important do you think that selection is of the next Treasury Secretary?

WEBER: I think the appointment will certainly be very important. You will want someone who is going to be able to work effectively with the other federal banking regulators and to work effectively with Congress, and someone who has the foresight and the ability to really craft good policy that will address some of the pain points that we've been struggling through this year, and also to address the regulatory issues that are kind of looming over us right now.

FIELD: Well, let me ask you about some of those regulatory issues. Earlier this year, the current Secretary Henry Paulson proposed a really dramatic overhaul of the banking regulatory agencies. What do you expect to see happen with his plan now?

WEBER: Well, you know in the short-term I don't think that we are going to see a regulatory overhaul; probably not in the next year. We will certainly see a lot of hearings happening in Congress as they try to basically determine what the regulatory structure should look like from now on. But I think we will definitely see some changes to the current regulatory structure, perhaps in terms of having one kind of master or "super regulator" who is really in charge of risk issues, market issues and who will be able to have more of a 360 degree view of what is going on in the financial services industry.

FIELD: But you think that is probably a couple of years out?

WEBER: I think so. You know it is going to be a monumental task, and there will certainly be a lot of debate and a lot of dialogue that will need to happen before something is hammered out.

FIELD: Now I suspect that we were due for some sort of new regulatory oversight; no matter who won the election yesterday. But I wanted to ask you, what new types of regulations do you think banking institutions ought to expect from this President and from this Congress?

WEBER: Well I think, as I mentioned, consumer protection issues are certainly at the top of the list. Also some issues regarding securities that perhaps were unregulated or had insufficient supervision. So some of those consumer protection issues we are talking about are credit card practices, perhaps issues around foreclosures and the bankruptcy laws and securities that are on the list of regulators right now, credit default swaps, collateralized debt obligations, so we will also see some movement in there and perhaps more debate or more talk on further regulation of investment banks and hedge funds.

FIELD: So just to wrap things up Eva, how would you say the banking industry is different today as a result of Tuesday's election?

WEBER: Well, I think certainly the stage has been set for things to happen a bit more quickly, and some of those happenings will no doubt be a response to the market crisis that we are still grappling with. But also with a Democratic President and a Democratic Congress I think we should anticipate quicker movement on some of the consumer protection issues that Congress is concerned about, which will certainly have an impact on the banking industry.

FIELD: It's going to be an eventful 2009, wouldn't you say?

WEBER: Absolutely.

FIELD: Eva, thank you so much for your time and your insight today. For Information Security Media Group, I'm Tom Field. Thank you very much.

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