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It took weeks for the dust to settle, but America finally knows who will be in charge of Congress come January. Due to close races, runoffs, legal challenges, and meticulous vote counts and recounts, citizens in states like Arizona, California, Colorado, Georgia and Nevada had to wait for weeks after the Nov. 8th election to learn who would officially represent them in the U.S. House and Senate. With the final tallies in hand, Democrats will own a 51-49 majority in the Senate, despite three members being Independents, and Republicans will have a 222-213 majority in the House.

While Republicans were expected to win the House by a larger majority, their slim victory was welcomed and sets a showdown for real power struggles within the Republican caucus. Democrats will usher in new top leadership with Speaker of the House Nancy Pelosi relinquishing control to U.S. Rep. Hakeem Jeffries, D-New York, who will be the new House Minority Leader.

New Way Of Conducting Business

After your head stops spinning from all of the historical turmoil, it’s time to analyze what divided government will mean for any group pushing for legislative changes, especially the banking industry.

Kirsten Sutton, executive vice president of Congressional relations and legislative affairs for the American Bankers Association, attached to bigger “must-pass” legislation. For instance, a bill that could affect the banking industry might find itself as one of several appendages to a major spending bill or a defense reauthorization package. It’s not the ideal way to legislate, but it often becomes the only way to get things done. said there was a bipartisan sense of being underwhelmed by the election results. Democrats were disappointed to lose united government and Republicans were not satisfied with stronger gains.

There is a greater chance that a divided Congress may result in more decisions defaulting to regulatory agencies, and Sutton warns that requires different lobbying strategies and a completely different approach to lawmaking.

“I think that this administration will be really looking to the regulatory agencies because Congress is no longer going to be able to deliver in the way that it was under united Democratic control,” she said. “I think that the agencies are going to be getting even more play than they did before. The one mitigating factor is that Republicans in the House and Senate are going to be very focused on oversight. They have said that, and they have a few more tools in their tool belt moving into the majority that they'll be able to use.

Rep. Kevin McCarthy, R-Calif., is the favorite to be the new Speaker of the House, but there is contention within the GOP caucus that, for now, keeps his ascension likely, but not definite.

The Senate will remain in Democratic control. For the first time in over a century no incumbent senators lost and, uncharacteristically, President Joe Biden’s party kept control of the upper chamber in a midterm election. U.S. Senator Kyrsten Sinema, I-Arizona, dropped her Democratic party label right after the election and will be one of three Independents in the Senate. She plans to caucus with the Democrats like Sen. Bernie Sanders, I-Vermont, and Sen. Angus King, I-Maine, both do.

"I think that folks are just feeling a little bit frustrated at what everyone knows and anticipates will be probably a lot of gridlock next Congress. Many suspected that Republicans would take the House in a more meaningful way, and that would mean some potentially, not huge changes, but more significant changes. The margin is so tight, it's going to be very challenging for this Congress to get anything accomplished legislatively," she said.

Sutton notes that tight margins in either chamber usually leads to bills being

“I think you'll see heightened activity coming out of the regulators and heightened scrutiny from Congress, particularly House Republican gavels, in the actions taken by these regulatory agencies. Those are some things that I would be watching for,” Sutton added.

Key Issues

ESG – Environmental, Social and Governance – will remain a political hot potato. The topic is ill-defined in the political lexicon and it carries a lot of different meanings to various constituencies and stakeholders.

Generally speaking, ESG refers to a set of standards for socially conscious investing. That could mean a large bank’s stock investments in “green” companies that oppose fossil fuels. It might define the types of companies a smaller bank will make loans to. It could also mean a community bank’s support for sponsoring Little League baseball or a local recycling program.

Sutton says the subject is a tough one to pin down.

“I will say that both sides of the aisle are incredibly interested in that term and what it means. And there's political pressure from both sides of the aisle, either for regulators to engage or to not engage. So, I think you could be seeing more ESG work out of some of the regulatory bodies,” she said.

While ESG is politically divisive, there may be more bipartisan support in the next Congress to address the banking industry’s push to change the tax treatment on mortgage loans made in agricultural and rural areas.

ECORA - Enhancing Credit Opportunities in Rural America – would alter the law for bankers providing credit to farmers. Sutton said the name of the proposal may change by the next Congress, but its support crosses party aisles.

“To me, it's a no-brainer. It's pro-ag, it's pro-farmer, pro-rancher, and there is bipartisan support for the bill,” she said. “I'm hopeful that we will continue to see increasing bipartisan support for ECORA moving into next Congress.”

Regulatory Reach

Sutton expects the CFPB – the Consumer Financial Protection Bureau –to stretch its boundaries in new directions. That agency’s director, Rohit Chopra, has been aggressive in his stances to regulate financial activities, such as a credit card fees, lending practices, and bank standards.

With the division in Congress, she also expects other agencies – the OCC and FDIC, for instance – to increase regulatory scrutiny of banks.

“I think the regulators feel that they have more unilateral authority to regulate the industry or change what the industry looks like for them,” she said.

Although the regulatory activism sounds daunting, Sutton believes Republican oversight in the new Congress will be helpful to banks. There will be champions, such as for- recreational marijuana. Federal law prohibits legal possession of marijuana and restricts financial institutions from providing banking services to these businesses. mer banker and Arkansas Second District U.S. Rep. French Hill, R-Little Rock, in the middle of several financial services committees. Hill’s experience in private banking and as a former U.S. Treasury official has garnered a bipartisan reputation as a thought leader on financial issues. Sutton said he’s often looked to for guidance on complex banking issues.

The SAFE Act – the Secure and Fair Enforcement Banking Act - would allow banks to enter the service arena for the marijuana market.

“His understanding of these policy issues, his experience working at Treasury has really given him incredible insight into a lot of the legislative and regulatory issues that we have to deal with,” she said.

LAME DUCK, STATE LEGISLATIVE ACTIVITY

Sutton sees a potentially positive development happening in the lame duck session of Congress that will conclude before year’s end.

After November’s elections, there are 39 states that have legalized medical or

“As we talk today with the lame duck still underway, we remain hopeful that we can get SAFE across the finish line in this Congress. If not, we will try again next year because we know this bill enjoys strong bipartisan support, and every day we don’t pass the SAFE Banking Act is another day that places public safety at risk.”

That optimism for consensus on the SAFE Act is tempered with the challenges of monitoring activity in 50 state legislatures, who are now more commonly taking up federal issues.

ESG, for instance, which will get a workover at the federal level is also going to be a topic of interest in many state legislative sessions, including a good chance in Arkansas.

“I think we've seen 48 bills at the state level, and there are about 14 at the federal level around the concept of ESG, and many of them are conflicting. It's something that as an industry, I think we'll be spending a lot of time on,” Sutton said.