The key midterm races Wall Street is watching

This transcript was produced with AI technology that converts speech to text. The text is not always reviewed or edited by Reuters journalists and some errors may occur.

A huge amount of attention on this upcoming midterm election across a range of public and private sectors, and the financial industry is no exception to that. Given who may end up controlling one or both chambers of Congress has huge implications for the financial sector, not only in terms of what their policy priorities and objectives that they would like to achieve are, but also in terms of what sort of scrutiny they may be facing in the years ahead. If Democrats are successful in taking either the House or the Senate or both, we can anticipate a much more harsh glare on this industry and some of the habits that they, some of the policies that they've been pursuing under the first couple of years of the Trump administration. And the financial industry, whether that is the cryptocurrency sector or the banking industry or even new burgeoning markets like prediction markets, all of them are anticipating a much tougher go-around if Democrats are successful in this year's elections. When it comes to specific races, there's a couple that are of particular significance to this industry. One that I would highlight is the Ohio Senate race, where former Senator Sherrod Brown is running against current Senator John Husted. That's significant because Brown was ousted in the 2024 elections from his previous Senate seat in Ohio, and now he's trying to replace a seat that was just recently vacated by Vice President JD Vance. It's significant for the industry because the crypto industry in particular has made quite a foe of Sherrod Brown over the years. They spent heavily on his reelection bid in 2024 and helped contribute to him losing that seat. And now they're back at it again, spending heavily, trying to keep him from returning to Washington. So we can anticipate that if crypto is successful in keeping him out, that's a big victory, a feather in their cap for that industry. But if they're unsuccessful and Brown returns, then all of a sudden they have someone who we know is fairly skeptical, to put it lightly, of the industry coming back to Washington, someone who's been around for a while, understands how policy works, and could be returning to some fairly prominent positions where he could be scrutinizing that industry. We can look at the Texas Senate race, which has gotten a lot of attention, with James Talarico running against the Texas Attorney General, Ken Paxton. Paxton is the Republican, but he has made several foes in the financial industry. When he was Attorney General in Texas, he helped lead several conservative states in scrutinizing what he described as quote-unquote woke policies from some financial industry players, even going so far as to filing lawsuits against some of these industry players. So you can see it's not necessarily just a very clean Republicans are for the industry, Democrats are against it. That rise of populism in both parties has really complicated things for the industry. We're starting to pay attention to races that we traditionally don't pay that close of attention to, what we typically think of as the classic swing state battles for control. One area to look at is Nebraska, typically a very lively red state. And there, Senator Pete Ricketts is in a very close race against an independent, Dan Osborne. He's a former labor union leader. And it's interesting, the Democrat in that race actually bowed out to give Osborne a better chance to compete against the Republican in this Republican stronghold. And this race also has significance for the financial industry. Ricketts previously sat on the board of TD Ameritrade, a firm that his father helped found. He's been reliably supportive of the crypto industry in his time in the Senate. And meanwhile, you have Osborne, who I mentioned was a union leader. And he's also been very vocal on a particular pet issue for the banking industry. He's been critical of what we call swipe fees, which are the fees that are charged on every credit card or debit card transaction. The banking industry for the last several years has been fighting multiple fronts of a battle on trying to prevent caps from being placed on those fees. And Osborne is very supportive of them. He calls them a scam, a tax on small businesses. And so that's going to be a race that normally we wouldn't be paying attention to a Nebraska Senate race. But if Osborne is successful in winning this very close race, that's going to have some pretty significant implications for that industry. One race that we flag in the story is Representative French Hill from Arkansas. He's chairman of the House Financial Services Committee, has been in Congress for a very long time, a very well-respected expert on banking policy. He's running a very tight race in Arkansas, another state that we don't typically think of as a major political battleground. And if French Hill is having a tough race, that means there could be other senior members on other committees that we, quite frankly, take a bit for granted when it comes to re-election. And if Democrats have a really, really good night at the polls, we could be seeing other senior leaders across various policymaking committees suddenly without a position. We obviously don't know how the midterm elections are going to turn out. But if the polls are correct and trend in the right direction, we're obviously looking at a position where the Democrats are in a position to gain at least control of one chamber of the House and potentially both the Senate. And what that means for the financial industry is it means a complete reorientation of their policy priorities. Very light touch, low regulation environment they operated in under the first two years of Trump administration is going to be coming under heavier scrutiny. Now let's caveat that by saying that, Donald Trump will still be president after the midterm elections, his regulators are still going to be in place. They're going to be advancing that agenda. But when it comes to legislation, the financial industry is now going to be shifting from offense defense. They're going to be spending a lot more time defending themselves, responding to, letters, calls for testimony. You know, if the Democrats have a good day and take control of the Senate, we're probably looking at Elizabeth Warren as chair of the Banking Committee. And Warren has basically built her political career on criticizing the financial industry so that, that particular shift in and of itself kind of paints a picture for what Wall Street might be looking at if Democrats have a good day. [This transcript was produced with AI technology that converts speech to text. The text is not reviewed or edited by Reuters journalists and some errors may occur.]