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Thank Goodness It Is Over

By Blair Rugh 16 Nov 2016

No matter what your political leaning, I think most of us are glad that the election is over. Work or not, there will be some profound changes that could have a substantial impact on the financial services industry. All organizations need to review their budgets and strategic plans to see if they are in line with what may be coming.

First, and not necessarily as a result of the election, I think interest rates will increase moderately over time. The Fed, which has kept rates artificially low, has telegraphed that it will raise rates at its December meeting. I expect further increases to follow; this should enable lenders to increase the yield spreads on their lending.

If regulations that impact business growth and new business formations are rolled back, that could dramatically increase the demand for commercial lending which is the profit driver for most community banks.

I have heard several members of Congress say that one thing high on the agenda is Dodd Frank reform. My guess is that there are several issues higher than that on the priority agenda, but Dodd-Frank could be addressed fairly early on. The principal target of Dodd-Frank reform appears to be the Consumer Financial Protection Bureau (CFPB). Almost certainly in the future it will be governed by a five, or more, member board rather than an autocratic director and there will be more congressional oversight over its activities. I would not be surprised to see the artificial rules on home affordability go away, but I do not foresee much relaxation in the other consumer protection rules. Going forward, I think that the CFPB will be much more balanced in its enforcement of the existing rules, and I think there will be very few new rules, which is not all bad. From where I sit, it seems that the rules themselves, once clearly defined, do not create problems. It is the cost of implementing change that does.

The carbon based energy industries, oil, natural gas and coal, should flourish. With a goal of making America truly energy independent, there should be a significant relaxation in the restrictions on their use, exploration and production. The XL pipeline will be approved, because of that there should not be a significant increase in energy costs but the bankers for those industries and their suppliers should see an increase in loan demand.

If there is a large enough decrease in the corporate tax rates or some other tax dispensation to cause domestic corporations that have trillions of dollars sequestered overseas to bring that money back and invest it in America, there could be a huge economic boom that could be the source of financing for some of the other programs of the President-elect.

The President-elect has proposed a one trillion dollar fund for refurbishing the nation's infrastructure, namely roads, bridges, airports and the inner-cities. There will probably also be a marked increase in military spending. Obama-care will certainly change as well as a lot of other things.

So far, the stock market, after an initial moment of fright, has applauded the election results. The stock prices of most community banks have reacted favorably. Because the changes that are coming are so dramatic bank management needs to review their strategic plans. For good, bad or indifferent, next year will be a different world than this year and there will be opportunities available to those with a clarity of vision.

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