By Nupur Anand, Tatiana Bautzer and Michelle Price
NEW YORK, Nov 5 (Reuters) - Wall Street banks were bracing on Wednesday for heightened scrutiny after Democrats took control of the US Congress, with executives and analysts predicting lawmakers would investigate cost-of-living issues and summon bank chiefs to testify.
Democrats are already preparing to investigate business dealings by President Donald Trump and members of his administration. Banking sources said the industry also expects that the massive
shift in Washington could allow lawmakers to advance efforts to crack down on artificial-intelligence-driven fraud.
Attorneys and analysts widely expect Democrats will probe consumer finance practices that may raise customer costs, such as junk fees, predatory lending and mortgages. One banking source said Democrats may also probe whether a pullback on regulation and oversight has hurt customers or weakened lenders. Two other people said lenders expect to spend more time responding to staff inquiries and preparing for hearings.
"There would certainly be attempts to bring back some of the restrictions on banks," said Peter Ricchiuti, professor at Tulane’s Freeman School of Business. "Consumer protection initiatives might be brought back to life."
In 2024, Wall Street bank CEOs from Jamie Dimon at JPMorgan Chase to David Solomon at Goldman Sachs congratulated Trump and welcomed the Republican as a business-friendly president.
Over the past two years, the industry has scored major capital relief and other big policy wins from Trump's regulators. Yet Trump has also targeted some banks, accusing the industry of refusing services to customers on political grounds and personally suing JPMorgan. The banks have denied Trump's claims.
Now, attorneys and advisors said the industry is trying to figure out how to handle Democrats who will assume control of both houses of the US Congress in January, handing them investigative staffs and subpoena power. Many financial services firms have been conducting risk assessments of their dealings with the Trump administration and identifying areas that could draw congressional interest, they said. Some are also already engaging with senior Democratic lawmakers, they added.
“The period between now and the end of the year I consider to be one of the most critical periods because you can do a lot of pre-emptive work,” Tom Perez, a partner at the law firm Mayer Brown, said at a Washington event on congressional oversight last week. Companies should check for any pending congressional inquiries that they may not have addressed, he added.
"That letter you got six months ago can be next January’s subpoena," he added.
Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee and a longtime Wall Street critic, is seen as the frontrunner to chair the banking panel. Representative Maxine Waters is the top Democrat on the House Financial Services Committee and lead contender to chair that panel.
Both have repeatedly raised concerns over affordability, including housing issues. They have also accused the administration of eroding consumer finance protections. The administration says it is cutting red tape that has stymied lenders.
When Waters previously ran the House committee, she called the CEOs of the largest banks to testify, and TD Cowen analysts on Wednesday said they expected a re-run. They also flagged policy risks such as credit card interest rate caps, an issue on which both parties are broadly united.
"Total congressional control likely increases the odds that bank CEOs will be summoned in front of Congress with their firms increasingly subject to hearings," the TD Cowen analysts wrote.
OPPORTUNITY TO BENEFIT
Banks still see an opportunity to push some policy issues in their favor and have been coalescing around a specific idea: getting tech and social media companies to do more to curb financial fraud which is hurting consumers, according to four of the banking sources.
Fast-evolving AI is driving ever-more sophisticated financial scams which are putting bank customers at greater risk.
"We need to do something to protect customers," said Huntington Bancshares CEO Stephen Steinour in an interview with Reuters. He said these tech companies need to commit to exclude accounts linked to fraudsters. Steinour said there is a good chance of getting bipartisan support on the issue.
One banking source said the industry believes it could harness strong voter opposition to AI development and infrastructure, such as data centers, underscored by the midterms to push the fraud issue in Congress. As part of that effort, banks may also lobby for lawmakers to review regulations governing wire transfers, a former regulatory source familiar with the matter said.
Banks are preparing to engage lawmakers early on issues likely to draw scrutiny, including fraud, credit-card fees, artificial intelligence and consumer protection, the banking sources said.
"The run of favorable legislation for the banks has likely come to a close, in our view," wrote TD Cowen analysts.
(Additional reporting by Saeed Azhar and Stephen Gandel in New York; editing by Megan Davies and David Gregorio)
