November 13, 2024 - Last week’s elections, resulting in a probable Republican “trifecta”, could have sweeping implications for the financial markets generally and the corporate loan markets in particular. Donald Trump scored a decisive victory, Republicans flipped control of the Senate, and, as we write, Republicans also appear to be on a path to retain the House by a slim margin.
What does this mean for the corporate credit markets? While it is too early to make bold predictions, several things that could be meaningful to financial markets in general and corporate credit more specifically, are clear.
Federal Financial Services Agency Appointments and Rulemaking.
President Trump will replace the heads of most of the federal regulatory agencies, including the SEC, the Federal Trade Commission (FTC) and most of the banking agencies. This will mean the end of the Gary Gensler era at the SEC and will ensure that none of the many outstanding significant and controversial rules proposed by the SEC will become effective. Even if the SEC were to try to finalize a rule before the change of administrations, it is highly likely that Congress would void it under the Congressional Review Act. Thus, rules such as the Outsourcing Rule, the Predictive Data Analytics Rule, and the Liquidity Risk Management Rule for open-end loan mutual funds) will not see the light of day. The new Administration will also likely replace Lena Kahn as head of the FTC, and put an end to her aggressive efforts to break up large tech firms and block many proposed mergers.
Senate Banking Committee
The Senate Banking Committee has jurisdiction over the SEC and the federal banking agencies and is responsible for moving financial services related legislation. The Committee was significantly impacted by the elections in two ways. First, the Republicans will now control the committee and Tim Scott (R. SC), who is the current Ranking Member, will likely become the Chairman, replacing Sherrod Brown (D. OH). Scott has been supportive of corporate credit and the LSTA has a good working relationship with him. Second, Brown and John Tester (D. MT), another senior member of Senate Banking, lost their elections so the Democrats will have to appoint a new Ranking Member of the Committee. While Jack Reed (D. RI) is the most senior member of the Committee, he is also on the Appropriations and Armed Services committees and does not want the position. Similarly, Mark Warner (D. WA) is Chairman of the Intelligence Committee and a member of Finance and is also not interested in the Banking Committee leadership role. Instead, Elizabeth Warren (D. MA), who has been generally hostile to the banking and private equity markets, is positioned to take the position.
House Financial Services Committee
The House Financial Services Committee (HFSC) also has jurisdiction over the SEC and the banking agencies and, like Senate Banking, is also responsible for moving any financial services related legislation. The HFSC will remain under Republican control but with a new Chairman. Patrick McHenry (R. NC) is retiring at the end of the year and either French Hill (R. AK) or Andy Barr (R. KY) will likely replace him. They are strong supporters of the credit markets and we have close relationships with both. Also noteworthy, Zach Nunn (R. IO), an important first term member, survived a very tough race and will continue to be a key member of HFSC.
Judicial Appointments
President Trump will once again be in a positioned to appoint federal judges. Because the Senate will be in the hands of Republicans for at least the next two years, it will be much easier for his appointees to be confirmed. There is also a real possibility that current conservative Justices Clarence Thomas (age 76) and Samuel Alito (age 74) will retire in the next two years, giving Trump the opportunity to appoint two more Supreme Court Justices. While not as immediately impactful as the changes to the agencies and the relevant committees, Judicial appointments could be very important in future litigation brought by the LSTA and other stakeholders under the Administrative Procedure Act.
Conclusion.
Many changes are coming to financial regulation. President Trump will be announcing many critical appointments, including the heads of the Treasury Department and many of the banking and other federal regulatory agencies. At the same time, the two parties will be selecting their Senate and House committee leaders. We will be following these developments closely.
