The Big Beautiful Bill's Impact on Banks and Banking
Also: Happy Fourth of July.
Greetings from the Washington Dulles Airport Marriott, where I am spending the weekend with my son and his River City 12U travel soccer team. They won the Soccer Maine state championship earlier this month, which has brought them to the East Coast Regionals, where they are now getting a good taste of just how strong the competition is out there!
A few miles away, The World’s Greatest Deliberative Body (…cough cough) is deliberating upon the so-called One Big Beautiful Bill. The bill is likely to remake various aspects of American life for generations to come in some pretty substantial ways. There are plenty of places around the internet where you can read mor about the full scope of the bill. This being a niche newsletter with a breadth of topics that covers the economy, real estate, and banking, we will focus there, and particularly on the latter.
The Status of the Beautiful Bill
The bill passed through the House of Representatives on a party line vote of 215-214-1. One Republican representative, Rep. Andy Harris of Maryland, voted “present” and two other Republicans, Rep. David Schweikert of Arizona, who appears to have been too late to the floor to vote, and Rep. Andrew Garbarino of New York, who appears to have fallen asleep during the late-night deliberations and missed his vote, both went unrecorded.
Now the bill is in the hands of the Senate. Passage is likely, although not before the Senate gets to amend, adjust, strike, and insert all manner of provisions. Among the proposals in the current bill or ones that have been suggested through proposed amendments by the Senate are:
A budget cut to the Consumer Financial Protection Bureau (CFPB). Currently, the CFPB is funded to the tune of 12% of the earnings of the Federal Reserve. The proposed reduction would be to 6.5%. Proponents say a scaled-back CFPB will reduce regulatory costs on those in the finance industry including banks, which will make things more efficient and less costly for both businesses and consumers alike. Opponents say the CFPB exists to protect consumers from fraud and malicious practices in the financial services industry, so by cutting the budget, there will be fewer investigations and less oversight, which means less protection for ordinary Americans. On a larger scale, neutering the regulatory watchdog could lead to systematic risk by having fewer shackles on bad actors in the industry.
A claw-back of $138 million in green housing initiatives that were proposed under the 2022 Inflation Reduction Act. These are funds that had not been spent yet, but were part of an original $1 billion allocation.
The elimination of a $448 million reserve fund at the SEC. This fund was meant to be used for the purchase of technology and for technology upgrades over time. If the bill passes, this amount will be swept back to the U.S. Treasury and the fund will be eliminated.
The funding of $1 billion for the Defense Protection Act (DPA). The DPA was enacted in 1950 and gives the President of the United States broad authority to instruct private industry to produce goods for the general defense of the country.
Changes to the tax code related to interest payments made to foreign banks. This provision will probably not impact many people, but it could have major impacts for wealthy investors here in the United States who use financing from banks that are headquartered in other countries. Discussions are around the implementation of up to a 20% tax on the interest payments to such banks.
What Comes Next
President Trump said previously he wanted the bill to be passed on or before July 4th, although he has since softened his tone slightly on that. The Republicans hold 53 seats in the Senate, so a slight majority — they can’t afford many defections. Some moderate Republicans have expressed concerns about cuts to Medicaid and to SNAP benefits, and have lodged modest opposition to some of the tax provisions. More fiscally conservative Republicans including those from the Freedom Caucus have expressed concerns that the bill doesn’t cut enough and, in fact, will add to the deficit through various items of increased spending with corresponding reductions.
For what it’s worth, the non-partisan Committee for a Responsible Federal Budget has said the One Big Beautiful Bill will add $2.4 trillion to the federal deficit over the next ten years, and $3.0 trillion if you count the additional interest costs. The Congressional Budget Office, which is a non-partisan agency of Congress that was created in 1974, has found about the same, saying the bill will increase deficits by $3.4 trillion while also knocking close to 11 million people off of Medicaid.
Senate Majority Leader John Thune appears to be whipping votes hard, and a vote may come later this week. On the Democrats’ side, Chuck Schumer is forcing a full reading of the 1,000-page bill on the Senate floor, which is meant to be a stall tactic and perhaps symbolically to compel members of the Senate to actually hear what is in the bill itself. So we shall see how the week plays out.
There are, of course, many other major implications in the bill that touch on many aspects of American life, and at the risk of punting on the full scope of the issues at play, I will wind down by saying that it is also Fourth of July Week. It’s hard to articulate the complex feelings so many Americans have these days about the state of our country and its future. In fact, recent polling suggests that the economy is, for once, not the top issue on the majority of Americans’ minds. What is? Preserving democracy. Perhaps that gives some hope that this American experiment will yet continue on for generations to come, paraphrasing Ben Frankling, “If you can keep it.” Happy Birthday, America. And Happy Fourth of July to all.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Thank you for sharing your thoughts on the Bill. It is helpful as I try to process all that the bill will impact. It will change a lot about the way we do things in the U.S.
Thoughtful and logical, as always. I appreciated the concluding statement(s) about democracy.