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On Wall Street Regulation, Joe Biden Keeps Everyone Guessing

The Wall Street Journal. logo The Wall Street Journal. 10/14/2020 Julie Bykowicz, Ted Mann
a man wearing a suit and tie © Olivier Douliery/Associated Press

WILMINGTON, Del.—Fifteen years ago, Joe Biden defended credit-card companies during a testy Senate exchange with Elizabeth Warren over legislation curtailing consumers’ ability to shed their debts in bankruptcy.

This March, he adopted her argument entirely.

Mr. Biden spent 36 years as a senator from the credit-card and corporate mecca of Delaware, where he built relationships and a voting record that provided ammunition for his opponents during a bruising Democratic presidential primary. Now, he is edging left on a range of issues from student debt to stock buybacks, leaving both progressives and Wall Street Democrats guessing whose side of the financial-regulation fight he is on.

Mr. Biden’s allies say he has always favored Main Street over Wall Street. Critics, including Vermont Senator and primary rival Bernie Sanders, often have portrayed him as favoring lenders over the little guy. Mr. Sanders backs Mr. Biden in the general election.

President Trump hasn’t made a campaign issue of his opponent’s ties to lenders and voting record on financial regulation. Mr. Biden has focused on his plan to revive an economy reeling from the Covid-19 pandemic, eschewing the kinds of proposals to rein in Wall Street that have been pillars of past Democrats’ presidential campaigns.

All that makes this crucial area of policy even harder to parse. Advocates on all sides of the debate can see elements of Biden’s record that give them both comfort and concern.

With polls showing Mr. Biden ahead nationally and in many swing states, progressives and Wall Street Democrats are jockeying to influence his potential administration, advising the campaign on policies and suggesting Cabinet and top regulatory officials.

“If Biden wins, it’s likely one of the wings will be very unhappy by Inauguration, as Biden’s early personnel decisions will indicate which grouping is ascendant,” said Jeff Hauser, who analyzes corporate influence on government for the liberal Center for Economic and Policy Research.

Both Democratic factions say they expect that a Biden administration would approach financial regulation much as President Obama did. While Mr. Obama signed the Dodd-Frank financial-reform act in 2010, the new law left out high-priority progressive proposals such as breaking up big banks.

During his campaign against Mr. Trump, Mr. Biden has said he would seek to revive and strengthen the Consumer Financial Protection Bureau, returning it to the aggressive posture envisioned when Ms. Warren led its creation.

He favors expanding banking services through post offices and individual accounts at the Federal Reserve to extend financial services to lower-income people. The result would be a new system in which people without bank accounts could easily deposit or transfer money at low cost, setting up competition with consumer banks.

He also backs an idea promoted by Mr. Sanders to create a public credit-reporting agency, which its supporters say would expand access to loans by eliminating racial discrimination in credit scoring.

Broadly, the Biden campaign’s proposals for the financial sector are being written with an eye to meeting the expectations of the Democratic progressive base without spooking moderates who worry about expanding regulatory powers. Mr. Biden in August introduced a plan to forgive hundreds of billions of dollars of student debt, but the proposal includes no changes to federal lending standards that allow households to borrow whatever is needed to cover the cost of tuition.

Wall Street has been generous to Mr. Biden’s presidential bid. People working in the securities and investment industry gave his campaign and outside groups backing him about $51 million through the end of August, according to the nonpartisan Center for Responsive Politics. Mr. Trump’s campaign and allied groups had raised $10.5 million from securities and investment workers.

Blackstone Group Inc. president and chief operating officer Jonathan Gray hosted a 17-person virtual fundraiser for Mr. Biden in July, and one of the private-equity firm’s executives, Alex Katz, is helping lead Mr. Biden’s transition team fundraising.

Mr. Biden also counts former Treasury Secretary Larry Summers, billionaire hedge-fund founder Orin Kramer and Roger Altman, the founder and chairman of investment bank Evercore Inc., among his supporters.

Progressives say they are nervous about what role Steve Ricchetti, a longtime lobbyist with close relationships on Wall Street who was Mr. Biden’s chief of staff when he was vice president, would play in a new administration.

On the other side of the aisle, Republicans, along with Mr. Biden’s Wall Street supporters, worry about how Ms. Warren—who has held some of the Biden campaign’s most lucrative general election fundraisers and had been on his vice presidential shortlist—might sway rulemakings and personnel choices, including leadership of the CFPB.

Sen. Pat Toomey, a Pennsylvania Republican on the Banking Committee, said a Biden administration would “lurch to the left, no question.”

“What I’m really worried about is the extent to which Biden feels the need to appease the far left, the Elizabeth Warren and Bernie Sanders wing,” he said. “The evidence so far is that he feels a great need to appease them.”

Some of the president’s allies have said a Biden administration would imperil market growth. The Club for Growth, a conservative economic policy organization, aired an ad in August in the swing states of Arizona, Pennsylvania and Wisconsin warning that “Joe Biden has taken a sharp left turn” and predicting the market would fall 25% with a Biden win.

Mr. Biden’s selection of California Sen. Kamala Harris as his running mate soothed many Wall Street Democrats, who don’t consider her a big-banks adversary as they do Ms. Warren.

Mr. Biden has nodded to progressives when talking about Wall Street. In a campaign ad that made its debut during the Republican National Convention, a narrator says, “No one has to tell him Wall Street didn’t build this country.”

At the July fundraiser with Mr. Gray of Blackstone, Mr. Biden said that while he comes from “the corporate state of America,” big companies must develop a sense of responsibility beyond CEO salaries and shareholders.

Still, he said, “It’s not going to require legislation. I’m not proposing any. We’ve got to think about how we deal people back in.”

Mr. Biden served as vice president during the country’s previous economic downturn—a formative experience that changed his thinking about whether markets would self-regulate, his advisers said.

“He was vice president at a time when a reckless, underregulated financial sector tanked the global economy,” said Jared Bernstein, an economic adviser to Mr. Biden who began working with him after Mr. Obama’s November 2008 victory. “He recognized that some of the abuses were very consistent with the sorts of regulations that Elizabeth Warren was calling for.”

Mr. Biden, 77, often speaks of his humble beginnings in Scranton, Pa., and his upbringing in a family where money was always tight. His political roots are in Delaware, the tiny state that has tied its fortunes to being a financial hub.

Signs of Mr. Biden’s decades of government service dot the landscape around Wilmington. The family name decorates a welcome center for motorists on Interstate 95. The historic brick Pennsylvania Railroad station in the center of town was re-christened the Joseph R. Biden Jr. Railroad Station in 2011.

The city’s central plaza, laid out at the behest of the leaders of a previous era’s local business titan, DuPont Co., now hosts large outposts of Bank of America, M&T Bank, Citizens’ Bank, and Wilmington Trust Co., among others.

During Mr. Biden’s early years as a Delaware senator in the 1970s, a series of state-level legislative and regulatory changes made it attractive for credit-card companies and corporations to base their operations there.

Now, finance, insurance and real estate accounts for 44% of Delaware’s economy, according to the U.S. Bureau of Economic Analysis.

Records show Mr. Biden sided with those companies on several key pieces of legislation over the years. The banking industry also was a source of campaign cash, attracted top former Biden staffers and at one point employed his son Hunter.

Jim Greene, Mr. Biden’s Senate policy director from 1992-2009, said his boss was far friendlier with union leaders than bankers.

“They were the guys who would come to Washington with their jackets on and sit down with him and call him Joe,” he said. The finance industry lobbyists, by contrast, called him Senator Biden and were always very formal, he said. “It wasn’t the same bond.”

Mr. Biden’s relationship with Wilmington-based MBNA, once the country’s biggest independent credit-card issuer and Delaware’s largest private employer, illustrates the other side of his policy instincts.

Mr. Biden and his wife traveled on a company plane to Maine to address an MBNA management conference in 1997, a government filing shows. He socialized with MBNA founder Charles Cawley, who lent Mr. Biden an original Andrew Wyeth painting from his personal collection to hang in the vice president’s residence in Washington. Mr. Cawley died in 2015.

In 1996, Mr. Biden sold his house outside Wilmington to an MBNA executive for the full asking price of $1.2 million. That year, Mr. Biden’s son Hunter, just out of law school, was hired by the company. The younger Mr. Biden later consulted for the company during the same period that MBNA fought for bankruptcy reform. Mr. Biden’s campaign says Hunter Biden didn’t lobby on that issue.

Mr. Biden was so sensitive to his reputation as being beholden to the credit card company—with newspaper editorials sometimes mocking him as “Biden, D-MBNA”—that he told the Washington Post in 1999, “I’m not the senator from MBNA.”

In recent years, Mr. Biden has said he regrets some of his earlier positions, including his 1999 vote to repeal the Glass-Steagall Act. That Depression-era law barred investment banks and commercial banks from being united under one roof and some on the left have blamed its repeal for precipitating the 2008 financial crisis.

Mr. Biden has taken fire from progressives, including during the Democratic primary, for the landmark 2005 bankruptcy legislation, which made it more difficult for consumers to shed their debts. Among the changes, the law broadened the kinds of student loans that can’t be discharged to include nongovernmental and for-profit lending.

Mr. Biden had long sided with lenders on the issue. In 2000, as chairman of the Foreign Relations Committee, he inserted the bankruptcy provision into a foreign-relations bill. The next year, he was the lone Democrat on the Senate Judiciary Committee to vote to advance the bill.

Banks made the case that consumer abuse of the bankruptcy system was raising borrowing costs for everyone and that credit-card companies shouldn’t shoulder the burden of what they called poor decision-making by borrowers.

“Without his support and the support of other Democrats who understood where we were coming from, who were sensitive to the abuse part, I don’t think it would ever have passed,” said John McKechnie, then the senior lobbyist for the Credit Union National Association.

Mr. Biden was one of 18 Democrats who voted for the bill; 25 opposed it.

In Senate debates, Mr. Biden said credit-card debt wasn’t a driving factor in the country’s surge in bankruptcies. He accused Ms. Warren and other consumer advocates of conflating the issues.

“Now, I know you will, but let’s call a spade a spade. Your problem with the credit-card companies is usury rates, from your position. It’s not about the bankruptcy bill,” Mr. Biden said, addressing Ms. Warren, who was testifying as a Harvard bankruptcy law professor.

“But Senator, if you’re not going to fix that problem, you can’t take away the last shred of protection for these families,” she responded.

On the campaign trail in April 2019, Ms. Warren, by then a Massachusetts senator and candidate for the Democratic presidential nomination, said she fought for families because they “just didn’t have anyone, and Joe Biden was on the side of credit-card companies.”

As a string of primary victories catapulted him toward the nomination, Mr. Biden’s campaign began bridging divides with some of his rivals.

At a virtual Illinois town hall March 13, he said for the first time that he endorsed Ms. Warren’s bankruptcy plan, which would repeal much of the bankruptcy law they battled over in 2005.

There are signs Wall Street has warmed to the idea of a Biden presidency. Some big banks including JPMorgan Chase & Co. have told investors that Mr. Biden could be good for the stock market, predicting his robust government spending plan could stimulate the overall economy in a way that offsets his promise to undo Mr. Trump’s tax cuts.

“Right now the markets feel it won’t be that painful for the banking system,” said Gerard Cassidy, head of U.S. bank equity strategy for RBC Capital Markets. “But you really don’t know. It’s going to come down to who is appointed in these key roles. If it’s progressives, you could see some radical changes that would surprise people.”

Write to Julie Bykowicz at julie.bykowicz@wsj.com and Ted Mann at ted.mann@wsj.com

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