How Presidential Politics Can Affect Your Bank Accounts
Some presidential campaign promises are guaranteed to affect the lives and finances of everyday Americans. Banking industry reforms may not seem like one of them.
After all, banking regulations can appear to be pretty remote from your day-to-day financial transactions. You may be surprised to learn that bank reforms implemented by past presidents and their cabinets have had material impacts on regular folks, and there’s no reason to believe that any regulatory changes brought about by a second Trump term or a Biden presidency would be any different.
Here’s what you need to know about how presidential politics have affected your bank accounts in the past, and how the outcome of the 2020 election could affect your banking experience in the future.
Historical Banking Changes That Continue to Affect Consumers
Presidential administrations of the past have implemented a number of different banking regulations and rule changes that continue to impact the consumer experience in 2020. It’s important to remember that the following banking changes were decided, in part, by the voters’ choosing the president who implemented the changes.
Creation of the Federal Reserve
Inaugurated in 1913, President Woodrow Wilson signed The Federal Reserve Act into law later that same year. Prior to the creation of the Federal Reserve, banks could not count on any emergency reserves if customers all withdrew their funds at once.
Such panic withdrawals were relatively common in response to widespread financial crises. The country plunged into a depression in 1907 after a big panic run on the banks led to the failure of several institutions.
The Federal Reserve Act established the Federal Reserve System as the U.S. central bank, which not only serves as a lender of last resort to commercial banks that would otherwise go under during an economic crisis, but also supervises and regulates banks to provide a level of safety and soundness. The Fed also sets monetary policy to help ensure full employment and price stability.
We’re still feeling the effects of Wilson’s policy every day. Due to the stability offered by the Federal Reserve, only two banks have failed in 2020, despite this year’s pandemic-related economic troubles. Compare this to the more than 600 bank failures per year between 1921 and 1929, prior to the Great Depression.
Even more importantly, the Fed sets the federal funds rate, which is the benchmark interest rate for the entire U.S. economy. (It’s also the amount of interest banks charge each other for loaning money overnight to maintain their reserve requirements.) The federal funds rate is currently set at 0% to 0.25%.
Financial institutions use the federal funds rate to set the interest rates they offer on interest-bearing accounts, such as savings accounts, CDs and money market accounts. When rates on these accounts are raised or lowered, it’s in part because of how the Fed has set the federal funds rate.
The federal funds rate also may affect the rates financial institutions charge on loans, such as mortgages, auto loans, credit cards and the like. However, individual credit history and other factors also can affect these rates.
Federal Deposit Insurance Corporation (FDIC)
Franklin D. Roosevelt signed the Banking Act of 1933 into law within his first 100 days of taking office. This legislation, which is often referred to as the Glass-Steagall Act after its sponsors, Senator Carter Glass (D-Va.) and Representative Henry B. Steagall (D-Al.), set up the Federal Deposit Insurance Corporation (FDIC), among other provisions.
The FDIC insures deposits at an individual bank for up to $250,000 per depositor, for each account ownership category. If your bank were to fail, the FDIC ensures that you would not lose your deposits, up to the applicable limits. As the FDIC proudly states on its website, “No depositor has ever lost a penny of insured deposits since the FDIC was…
Read More: How Presidential Politics Can Affect Your Bank Accounts