Regardless of who wins the White House in November, considerable change could be on the way to the financial industry.

It’s hardly a revelation to say election results can have a profound impact on financial institutions, including private lenders. The leadership of Woodrow Wilson in 1913 led to the establishment of the Federal Reserve Board, which still operates as the major organizing principal in the modern age of banking. Some think that President Clinton’s repeal of the Glass-Steagall Act, which allowed banks to participate in speculative securities markets, was a contributing factor in the 2008 financial crisis from which the economy is still recovering. Most recently, under President Obama, the Dodd-Frank Act ushered in a new era of federal monitoring and heavy regulation of financial institutions, especially for the “too big to fail” global banks.

During the 2016 election season, the media has amplified the fevered controversy on topics such as immigration, Second Amendment rights and terrorism. In contrast, not much attention given has been given to an issue that has the potential to have a major impact on the growth of the economy—namely, the future of federal regulations on the banking and private lending community. Depending on who occupies the White House next January, we may be subject to a new environment of increasingly cumbersome federal regulations, or, conversely, a rollback of some of the more constricting regulations in this sector.

So what exactly are the facts concerning the two major candidates, and how might their policies affect the banking industry? Let’s take a look.

TRUMP: How Much Will He Really Disrupt the Status Quo?

Most of the media portrayal of Donald Trump shows him to be an unpredictable candidate, eager to up-end the status quo. Some have speculated that this unpredictability could spell trouble for the banking world. After all, if his views seem changeable when it comes to veterans affairs and immigration, it is natural to question whether his positions on the regulatory environment are similarly malleable and might change down the road.

Although his views on some issues may be subject to populous momentum, a careful analysis of his position points to the likelihood that very little would really change for private lenders under a Trump administration, and in fact, some things may get easier.

For one thing, Trump has stated his dislike of the Dodd-Frank Act and has even hinted that he might dismantle it, a task that Republicans have been attempting unsuccessfully for a while. Many Republicans believe that these regulations are stifling the economy.

Trump has also declared his intention to require every federal agency to prepare a ranked list of regulations imposed on American businesses and to prioritize them from most to least critical. Items ranked at the bottom of the list will be first in line for consideration of repeal. While some may question the practicality of this measure, it shows that Trump’s vision includes the deregulation of business. He has made this vision even clearer in his proposal to pause the creation of new regulations and to review all of the regulations presently in place, expressing his intention to “scrap” some of them. It seems clear from this stance that any changes made by Trump to the banking industry would lean toward loosening the regulatory environment.

Concerning lending practices in general, Trump has hinted at changes, stating his intention to move student loans out of government control and back into the private sector. This statement can be interpreted to indicate support for private lenders in general over government regulation.

Based on his positions on these issues, it seems likely that there will be no great disruption to the banking industry should Trump become president. In fact, an easing of regulations and red tape may make it easier for banks to compete for those clients that are currently deemed “unbankable.” Over the last two years, regulators have applied more scrutiny to banks of all sizes to ensure collateral requirements are met. The more stringent conditions applied to the banks have correspondingly boosted deal flow to the private lending sector. Under a possible Trump administration, banks may be better equipped to fight for those customers, and win with their lower interest rates. In this scenario, a Trump victory in November could lead to less favorable market conditions for private lenders, due to the increased competition.

CLINTON: Fighting Shadows?

Hillary Clinton has been very clear on her stance regarding private lenders, promising to be tough on them. She refers to them as “shadow banks,” pointing to their business practices as a source of economic instability. Many of her statements on this issue show that she has every intention of cracking down on such businesses by increasing government monitoring and regulation.

Under Dodd-Frank, private lenders already have become subject to some cumbersome restrictions. For example, hedge funds and firms are required to fill out a costly and prohibitive amount of paperwork every year to ensure compliance with the law. A “3 percent rule” on the availability of mortgage loans was also imposed. As a result, home loans have become much less affordable to a vast segment of the American population. With increased regulation, it is to be expected that such cost-prohibitive and lengthy paperwork will expand, as lenders are under an ever-increasing regulatory burden.

While Trump has expressed a desire to dismantle Dodd-Frank, Clinton wants to strengthen and extend it. In a December 2015 New York Times op-ed piece, she stated: “As president, I would not only veto any legislation that would weaken financial reform, but I would also fight for tough new rules, stronger enforcement and more accountability that go well beyond Dodd-Frank.” And she has indicated some specific measures that she would take to accomplish this.

For one thing, she proposes that financial institutions with more than $50 billion in assets will have to pay a graduated “risk fee.” Banks could also pay a fee if they are identified as “risky” by regulators. These fees will augment the restrictions and capital requirements that have already been imposed on banks in the aftermath of the financial crisis, leading to further shrinking of loans available to the average consumer. The goal of this legislation is to avoid the problem of banks becoming “too big to fail” and necessitating another bailout. While in theory this policy would only affect large corporations, in practice it could place limitations even on smaller institutions, as they too become increasingly limited in their ability to offer affordable loans.

Clinton has also stated her intention to strengthen the Volcker Rule, which some think has already weakened banks by hindering competition. Clinton’s plan is to extend the rule so that it applies to corners of the banking world that have so far been lightly regulated, such as hedge funds and insurance companies.

While Clinton does not endorse reinstating Glass Steagall, as her Democratic opponent Bernie Sanders did, she has expressed a plan to enforce tighter regulations, which could lead to the downsizing and breakup of large financial institutions that are too complex or risky. Thus it seems clear that this stance will bring lenders under greater scrutiny. She also pledges to mandate greater transparency in what she terms the “shadow banking system.” She has even criticized Sanders for having a “hands-off” approach to what she deems the riskiest activities in our economy. Her voting record while in Congress supports this, as she repeatedly blocked Republican attempts to limit the power of the Consumer Financial Protection Bureau, a regulatory agency that came into being as part of President Obama’s system of financial reform. However, she did vote in favor of the bank bailout in 2008, despite expressing some reservations about it, which seems to indicate a desire to intervene to keep the banks going, if necessary.

Clinton also supports the Federal Reserve’s plan to ban mandatory arbitration clauses in bank contracts. This would result in a massive upswing of litigation that will be costly to financial institutions, and thus to consumers, as the cost is passed along to them through decreased availability of affordable loans.

It’s worth noting that Hillary Clinton has been criticized for her friendships with big banks and corporations like Goldman Sachs. She has even received payment for speaking engagements on Wall Street. Consequently, some voters are skeptical that she will really enact legislation that runs counter to the interests of such corporations. During her husband’s presidency, he deregulated the financial industry, taking away many of the structures put in place for the purpose of government monitoring of financial institutions. Candidate Hillary Clinton shares some of the same advisers.

It seems likely, though, that Clinton will stay strong in her support of the Dodd-Frank Act, which Trump seems bent on repealing—or at least weakening. Clinton’s position is one that is embraced by people on both sides of the aisle; the cause of tougher restrictions on Wall Street is a popular one.

Based on her history and her platform, it seems very likely that Hillary Clinton’s presidency would herald an era of tightening regulations on the banking industry. Her policies could severely restrict the freedom of private lenders, even more so than has been already experienced with President Obama. The costs to lenders will eventually be translated into loans that are increasingly unavailable to the average consumer, potentially shutting some of them out of the housing market.

Private lenders will do well to prepare for the possibility of increased government regulation. Under Clinton’s leadership, there will be great incentive for banks to simplify, reducing their risk of appearing “too big to fail” and thus incurring penalties and restrictions. Lenders will need to implement costcutting measures to buffer the potential increasing cost of new restrictions. They should consider reducing their operating expenses in a manner similar to the New Project BAC implemented by Bank of America last year. By streamlining its workforce, Bank of America was able to reduce costs by $8 billion, somewhat mitigating the increasing expense related to compliance with the Dodd- Frank legislation.

Lenders may also need to restructure their lending practices to be less dependent on volatile, risky sources in order to avoid penalties.

For those in the private lending sector, now is the time to begin planning for either scenario; the likelihood of status quo or perhaps deregulation in a possible Trump administration, compared to the potential of challenging new regulations in a possible Hillary Clinton administration. While it’s hard to predict, it seems clear that there is great potential for some significant changes to our financial institutions.

Jeff Levin’s article was originally published in Private Lender Magazine. Check out the full magazine below along with other great articles.

Private lenders are justifiably concerned about the implications of “Brexit”—the British exit from the European Union—for the U.S. commercial real estate market, considering the wave of uncertainty that has washed across the UK and Europe. In the months prior to the June vote in the UK, the CRE industry appeared to be flattening out, suggesting it had reached the peak of its seminal business cycle.

Naturally the “view” from the top of any business cycle tends to be downward, but the question remains: Will Brexit be the catalyst that pushes the U.S. CRE into bearish territory? Or will it prove to be a boon as interest rates stay low and investor liquidity flows to the safety of our shores? The answer will be determined in time. As this all plays out, private lenders should carefully monitor what is happening across the UK and EU markets, as opportunities and new deals are sure to surface as a result, as well as a hefty new dose of risk.

Prior to this year—and the instability associated with Brexit—the UK had enjoyed steady growth in the commercial real estate market. Indeed, compared to its last peak in 2007, prior to the Great Recession, the UK’s Commercial Property Price Index has more than doubled. Assets across all manner of CRE investments were paying off and attracting more buyers.

However, during the spring of 2016, signs began to emerge that the party was almost over and the hangover was starting to set in. Over the three months prior to the Brexit vote, deal flow in the UK and EU slowed significantly, particularly in London. Of the pending deals, many had contingency clauses that allowed lenders or buyers to exit the contract in the event Brexit passed.

In advance of the vote, most polls suggested the “Remain” side would win by a couple of percentage points and the UK would stay in the EU economic structure. However, prudent lenders and buyers were nervous that Brexit might somehow happen, an anxiety compounded by the localized shocks of grisly terrorist attacks.
Starting in early July, before the vote, several leading commercial property funds barred withdrawals by investors who wanted to cash out as a hedge against a possible Brexit downturn. Given the vote to leave the EU, more funds are likely to adopt this approach over the course of this summer.

Brexit, Regret It.

On June 24, pure panic set in across the investment world. The official vote was announced: Britain would leave the EU. Prime Minister David Cameron, chief advocate of the “Remain” side, stepped down. The ruling Conservative Party was reshuffled and a new Prime Minister selected. Meanwhile, nobody had a clear view on how a breakup between the highly integrated UK and EU markets was supposed to proceed. Leaders on either side of the English Channel could not even agree on the start date for the untangling.

For investors and buyers, the news of the “Leave” vote and the calamitous political environment left in its wake caused CRE markets in the UK and EU to seize up virtually over night. Pundits declared it would lead to a severe downturn of all world markets. The public CRE companies trading in U.S. markets, as well as the London bourse, all took a big hit in share value. Global and domestic banks immediately adopted a much tighter approach to buyer debt ratios. Meanwhile, the British currency plunged, causing CRE funds in Britain to lose billions of value in a matter of days.

Banks across the UK and Europe were battered as a result of the vote and remain that way, with share prices tumbling and bond prices also under pressure. According to an article in the Financial Times, the cause is less a direct effect of Brexit and more a function of what the central banks of Europe are going to do about it: “The medicine: very low interest rates, with little difference between short- and long-term interest rates, make it hard for banks to profit from lending.” Italian banks, the article went on to note, were in trouble long before the “Leave” vote.

Now, all pre-existing problems for the banking and CRE sectors across the EU can be, for political and policy purposes, thrown into one common bucket called the Brexit effect. No matter what the original root cause of these problems was—like Italy’s overly aggressive track record in property lending—the EU now has to deal with the symptoms in a collective manner; with, as usual, larger economies like Germany bearing the brunt of the cost.

Brexit, Terrorism and the Very Bad Summer

While the UK is ground zero, real estate in the EU is under tremendous pressure and not simply because of Brexit. It was reported after the bloody July attack in Nice, France, that one of the main extremist aims was to destroy the economy of that country. Shocks that harm tourism, a vital economic sector for most European countries, have a cascading effect on investments in hotels, restaurants, airports and infrastructure. Similar acts of terror in Belgium, Turkey and other countries compounds the feeling ordinary Europeans have of being under siege. CRE service companies across the EU have lowered expectations, as deals have been canceled or downgraded.

Will Brexit Impact the US?

Prior to the Brexit vote, the U.S. CRE market was already showing signs of being at the peak of a lengthy business cycle, possibly at a bubble stage, with a potential market correction looming. Regulators took notice.

In 2015 the Fed, FDIC and others issued warnings about lending practices in CRE transactions. Banks had over $1.8 trillion in outstanding loans—billions more than the last peak before the Great Recession. This year regulators and lenders began to carefully monitor the risk in CRE loans versus equity and are now backing off some loans. According to one report, bankers are getting tougher regarding lending for more speculative projects, lowering allowable loan-to-value ratios. Expectations that the Fed would increase interest rates, albeit slowly, created more cause for worry. It’s a stew of uncertainty peppered by terrorism, an unpredictable presidential election cycle, a slowdown in China’s economic growth and now Brexit.
London newspapers as well as some American media outlets likened Brexit to a contagion that would infect all the world’s markets. But in fact, the U.S. has been pretty well inoculated. This inoculation results from two factors.

First, the Federal Reserve’s philosophy is to use low interest rates as a lever to support economic growth. When the economy is healthy, the Fed is supposed to ease up on this lever so rates gradually increase. Last December, after seven years of the most accommodating monetary policy in U.S. history, the Fed approved a quarter-point increase in its target funds rate. The range for its target funds rate went from 0 percent to 0.25 percent previously, to 0.25 percent to 0.5 percent where it is today. Prior to Brexit, there was widespread expectation of another 25 basis point increase to come by the fall of 2016. Now, however, the “Brexit Surprise” caused the Fed to reverse course and signal that the time is no longer right for an additional interest rate hike.

Secondly, massive amounts of investor liquidity from the UK and Europe are likely to flow to the relative safety of the U.S. market, given the unpredictable path ahead for the UK and EU in determining their economic engagement for the post-Brexit era. Investors and analysts reached this conclusion pretty quickly in the aftermath of the Brexit vote. The doom-and-gloom expectations for major indexes lasted no more than three weeks, and by mid-July, the Dow Jones Industrial Average jumped to several all-time records.

Be Bold, But Not Too Bold…

Because of today’s high risk in the CRE market across the UK and Europe, and the fact that the US market—while relatively more stable—still presents a good amount of unpredictability, private lenders need to be more vigilant about risk while keeping the door open to lucrative new opportunities. The risks are many: property and collateral values may fluctuate; funds and traditional lenders may pull money out of deals; and buyers may bail out of contracts. Yet other factors may create positive conditions here. For example, investors who ordinarily would have pursued deals on the other side of the Atlantic may flock to the relative safety of the U.S. as buyers find more attractive possibilities here. Traditional lenders getting the screws put to them by regulators may leave prospective buyers hungry for private lending, despite a yield spread that will probably widen over the next few quarters. While the total number of CRE deals may well shrink from the torrid pace of the last few years, the percentage of deals coming to private lenders may actually increase as a share of the market.

Furthermore, while regulatory and market conditions are different and require careful research, intrepid private lenders may also find opportunities in the UK and Europe in this post-Brexit environment. Even though there may be some great opportunities, without a doubt there will be fewer overall CRE opportunities on the other side of the Atlantic.

While it’s very early in the process that will see Britain start a new course on its own, investors should stay upbeat and diligent. There will be gems out there for private lenders looking for the right opportunities. The big drop in the British currency against the dollar could offer as many good deals as it discourages.

As the multinational and regional European banks back off during the transition, by ratcheting up collateral requirements and making financing, insurance and securitization of CRE deals more difficult in a bid to reduce their portfolio exposure, many buying and financing opportunities are likely to emerge for those private lenders paying attention.

Everyone should move with the understanding that Brexit is the first such divorce from the EU and could result in further financial crises. The EU countries are fluid and economies like Italy could be in danger at any moment. Private lenders will want to do more than their usual due diligence, but the potential victories on the other side of the Atlantic could be well worth the effort.

This article was originally published in Private Lender Magazine. Check out the full magazine along with other great articles.