Elizabeth Warren’s Power Grows As Biden Positions for November Election

THE COWEN INSIGHT

We see Sen. Elizabeth Warren having an outsized policy role if Joe Biden can defeat Donald Trump in November. Biden has been leaning left because he knows Warren’s voters must show up for him to prevail. Warren is likely to have the most influence over regulatory policy. Enacting legislation will be harder as the Senate will be closely divided.

Our View

• We believe Joe Biden is capable of beating Donald Trump in November though the race is close enough that it will come down to the economy and COVID-19 in a handful of states.
• Our view is that Biden is trying to shift left for the general election to ensure progressives show up and vote. We see this shift as giving Sen. Elizabeth Warren an oversized role in setting policy for financials and housing.
• Warren is unlikely to join the Biden administration as there is a Republican governor in Massachusetts who would get to pick her replacement. But she is likely to heavily influence whom Biden picks for top financial policy jobs including Treasury secretary, Labor secretary, vice chair for supervision at the Federal Reserve and Federal Reserve chair.
• Her influence is likely to lead to a re-regulation of banks including limits on dividends, higher capital requirements, more onerous stress testing and tougher consumer compliance. We also expect the Labor Department to revive the Fiduciary Duty rule for investment advice.
• What we are less worried about is on the legislative front. At best, the Democrats would have a very narrow margin in the Senate. The GOP could even still control the Senate. That means Warren’s most radical ideas such as bankruptcy reform, a wealth tax and a financial transaction tax are unlikely to advance even given her influence with Team Biden.