November 16, 2020 - Last week the LSTA ended its eight-part Virtual Annual Conference with a deeply informed analysis of the post-election political environment and what it may mean for the financial regulation generally and the syndicated loan market in particular. LSTA General Counsel Elliot Ganz was joined in a free-wheeling discussion by two seasoned veterans of the Washington political scene, Reg Brown and David Cohen of WilmerHale.
The panel began by noting that although president Trump has refused to concede, his chances for overturning the election results are virtually non-existent. Instead, all eyes are turned to the runoff elections for two Georgia Senate seats scheduled for early January that will determine which party controls the Senate. That determination will have far-ranging implications, especially in connection with which potential nominees president-elect Biden will be able to get confirmed; a Democratic Senate (with 50 seats and the tie-breaking vote of vice president-elect Harris) would give him a much freer hand. Next, the panel noted that the president-elect’s transition team reflects a range of views towards financial regulation. Former Senator Ted Kauffman, a longtime confidant of the president-elect, has been a strong proponent of financial services regulation and a strong opponent of the concentrated power of large banks. Former Obama economic adviser Jeffrey Zaints, on the other hand, has strong ties to tech and finance and has a more moderate view of regulation. Finally, somewhere in the middle is the head of the transition team, Ron Klain, incoming White House Chief of Staff, who is likely to be the one to navigate the tensions between the two views.
Among the people whose names have been floated for senior financial positions in a Biden administration are Lael Brainard at the Federal Reserve and Roger Ferguson at Treasury. Notably, both panelists doubted that Senator Elizabeth Warren would be appointed as Treasury Secretary (because her appointment would open the possibility that a Republican would replace her in the Senate) but agreed that she would be play an influential role in filing financial regulatory positions, especially in administrative positions that do not require Senate confirmation. The panel then turned to the president-elect’s likely financial regulatory priorities, noting that COVID-19 relief would be at the top of the list. Given the fact that the Senate will be so evenly split, they did not think it likely that major financial regulatory bills, such as Senator Warren’s “Stop Wall Street Looting Act” (which would re-impose risk retention for CLO managers) could be enacted. Nor did they believe that Congress would be inclined to use its powers under the Congressional Review Act to void the recent Volcker Rule reforms that allow CLOs to hold baskets of non-loans. On the flip side, the panelists thought consumer bankruptcy reform could be a high priority in the COVID-19 environment which could make way for efforts to include (possibly troubling) corporate bankruptcy reform in a bankruptcy legislation package.
Finally, the panel agreed that a current rulemaking that would codify the proposition that supervisory guidance (such as the Leveraged Lending Guidance) cannot be enforced as a rule will probably die on the vine under a Biden administration, particularly in an environment where administrative action is the most likely policy path in the face of a tightly split Congress where legislation will be challenging. Mr. Brown ended the session by urging the LSTA and its members “not to let your guard down” but rather to continue active and targeted engagement with key members of Congress, federal agencies and the incoming administration by being an honest broker and useful provider of information and data. A replay of the presentation and the related slides are available here.