WASHINGTON — President Biden’s plans for a major infrastructure package could be a double-edged sword for banks.
On the one hand, if Congress and Transportation Secretary Pete Buttigieg are able to advance the $2 trillion infrastructure plan Biden pushed during the presidential campaign, observers say it could open the door to financial institutions’ seizing new lending opportunities, partnering with states and localities on clean-energy and transit projects, and earning ample credits on their Community Reinvestment Act exams.
But on the other, analysts warn that the government could look to the financial sector to help fund infrastructure upgrades through additional taxes on the industry.
“Banks should be watching this, because they could easily be a beneficiary, or they could be the pay-for,” said Ed Mills, a policy analyst at Raymond James.
Infrastructure plans have been popular as stated policy goals for multiple administrations because they have bipartisan appeal. But the results of such plans rarely fulfill their promise. The Trump administration touted a $1 trillion infrastructure proposal in 2017. Yet by that time, large U.S. banks had pulled back significantly from infrastructure lending thanks to post-crisis capital rules, ceding market share to foreign competitors.
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Biden’s plan is more ambitious. Among other things, it would fund investments in roads, bridges and energy infrastructure; expand public transportation in cities with over 100,000 people; and seek to reduce costs of clean energy technology.
Buttigieg, who had proposed his own $1 trillion infrastructure plan during the campaign, said infrastructure “can be the cornerstone” to the nation’s economic recovery.
It is still unclear how the administration will try to advance the plan, and the federal policy focus right now continues to be on combating the COVID-19 pandemic. But some observers note that financial institutions could benefit from the federal government disbursing infrastructure-related funds to state and local governments.
“When we’re talking about federal infrastructure, what we’re really talking about is the federal government in a partnership with state and locals,” said Aaron Klein, an economic studies fellow at the Brookings Institution. “The federal government offers … money, and states and locals have to match. The way states and locals mostly match is they borrow. And so banks are an integral part of the state and local side.”
Others say major infrastructure spending in general could spur community investment that would lead to more business and mortgage lending.
“It really is the thought that those investments will trickle down and put more money into people’s pockets, and money in people’s pockets will cause spending and development, and all those kinds of things are really good for banks,” said James Stevens, a partner at Troutman Pepper.
Mills said that community development financial institutions could be a beneficiary of a Biden administration infrastructure plan.
“I think that the administration is going to certainly be looking for partnerships,” Mills said. “I think it was very interesting to see in the last stimulus bill, the investment that was put into the minority depository institutions and the community development financial institutions. And so I think that could be a model for making sure that any infrastructure investments going forward, does have community partners, and are as targeted as much as possible.”
He added that the Biden administration’s regulators could also provide incentives such as CRA credit to banks that provide lending for clean energy projects or other activities benefiting the environment. Similarly, the New York State Department of Financial Services recently announced that it will give banks credit under the state’s CRA law for financing solar panels.
“New York giving banks anti-redlining credit or CRA credit for climate investments, is that a model?” said Mills. “For Democrats, infrastructure and climate is now synonymous. And to make sure there are investments in climate technology or green, you can have … our banks incentivized in an infrastructure bill to do so.”
But the trillions in federal dollars already spent on pandemic relief, combined with Biden’s proposed $1.9 trillion stimulus plan, will likely force Congress to rethink tapping the U.S. Treasury again for infrastructure improvement support.
“If we get through this $1.9 trillion package, which would be in addition to the $4 trillion that’s already been spent, as a response to COVID, it’s going to be pretty challenging to add another $2 trillion as Biden has proposed for infrastructure,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.
That raises the possibility that policymakers will seek more direct funding from the private sector. Policymakers have proposed a financial transactions tax on a company’s securities trades as a means to offset new spending. Some even suggest that Democrats’ newfound hold on power in Washington could renew focus on a direct bank tax on the largest institutions.
“I think a financial transaction tax is a bigger risk this year than it has been in 20 years,” Mills said.
Isaac Boltansky, director of policy research at Compass Point Research & Trading, agreed that infrastructure spending will likely be a result of some type of tax increase on the private sector.
“There will be economic impacts” from an infrastructure plan, “which will spur growth and likely increase loan demand,” said Boltansky. “There could be opportunities on the financing side that are net positive for banks. … We’ve got to keep in mind that there are also questions and potential downside, as evidenced by the issue’s convergence with tax policy.”
Still, Merski noted that community banks at the local level in regions where the Biden administration invests in infrastructure will likely see new lending opportunities. The policy could prioritize investments in rural areas with outdated roads, bridges or electric infrastructure. In those cases, the handful of community banks serving a particular area stand to benefit.
“So, say in Montana,” Merski said, the government wants to invest in more solar panels. “Obviously, a community bank can help finance the building of their solar panels or finance the economic activity that it would create in that town or that area.”
