Senate's New Climate for Wall Street: Warmer With A Chance of Surprises

Political analysts see sunnier skies for the financial industry when it comes to the new Republican-led Senate.

"The environment in Congress may be potentially less critical of banks under Republicans," said Caitlin Webber, an analyst for Bloomberg Intelligence. "Under Democrats, we've seen a series of hearings where bank executives have been called before Congress to answer questions. There could potentially be less scrutiny on banks and more scrutiny on regulators, because many Republicans in Congress are skeptical of the role regulators are asserting over the financial market."

But the Republicans still don't have a veto-proof majority, so they probably won't be able to repeal the major reforms to the financial services industry that came with passage of the Dodd-Frank legislation in 2010. Instead, Webber said, they could try to delay certain provisions of the bill. Similarly, instead of overturning the Affordable Care Act, she said Republicans may work with Democrats on tweaks, like a repeal of the medical device tax, which has some bipartisan support.

Webber called Richard Shelby, the Republican Senator from Alabama who's expected to head up the banking committee, a "known entity" for Wall Street, since he held the same post about a decade ago. But familiarity doesn't always breed friendship: Shelby voted against the bank bailout in 2008, and recently joined Sen. Elizabeth Warren, Democrat from Massachusetts, in calling for stronger punishments for banks involved in the mortgage crisis.

"While no one would call him Wall Street’s best friend in Congress, he’s also very skeptical of government regulations of banks," she said.

For example, Shelby also voted against the new regulations for banks that were part of the Dodd-Frank reforms.

"He really does fit that Southern populist mode of, 'I don’t trust Big Finance but I also don’t trust Big Government,'" said Mark Calabria of the libertarian-leaning Cato Institute, who used to work for Shelby.

Still, analysts see opportunities for collaboration between the Republicans, the Democrats and the White House on some issues.

"President Obama actually has more support for his free trade deals that are under negotiation from Republicans than he does from his own party. So the winds from yesterday could really be auspicious for White House trade negotiators," Webber said.

She said the Republicans and Democrats might also find common ground on patent litigation reform, energy efficiency incentives for commercial buildings, and the collection of an online sales tax.

Calabria said he envisions Republicans working with the White House to overhaul Fannie Mae and Freddie Mac.