Trump's victory boosts U.S. bank stocks, Wall Street anticipates regulatory easing

According to the Zhitong Finance APP, this week, the sentiment among the largest banks in the United States shifted from cautiously optimistic to jubilant as they saw the prospect of relief from regulators during the Biden era. On the Wednesday following Trump's election announcement, U.S. bank stocks surged, with the KBW Bank Index rising over 10%.

In recent years, stricter regulations, led by higher capital requirements known as the "final" rules of the Basel III Accord, have united the banking industry to push back in unprecedented ways. Large banks and their representative industry associations have spent millions lobbying and gained concessions when the Federal Reserve indicated it would introduce a more lenient version.

This more lenient version has not yet been made public. Senior banking executives believe that the proposal is nearly dead, although regulators claim they will work to implement it regardless of who wins the election. Betsy Duke, a former Federal Reserve governor who later served as chair of Wells Fargo's board, stated, "They are unlikely to reach an agreement on a new proposal, and even if they could, there is no time to announce and implement it before the new government takes office."

Theoretically, the incoming Trump administration will be able to replace the heads of the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau on its first day in office, at least temporarily. These two officials are crucial in the proposal and implementation of the new capital requirements. Banks are already seizing the opportunity to advocate for more industry-friendly appointments.

An executive from a large bank expressed that they look forward to a more predictable regulatory environment, driven less by enforcement actions and public campaigns, and more focused on clear rules. However, they also warned that regulators might push a public agenda that could hinder diversity and inclusion efforts, as well as investments related to environmental, social, and governance metrics.

Wall Street insiders noted that while the Trump administration is expected to broadly relax regulations, some Republicans tend to tighten capital requirements. The initial plan would require the eight largest U.S. banks to raise their capital by about 9%, roughly half of the increase originally proposed by regulators. If this plan is abandoned or significantly scaled back again, it could complicate overseas issues. The European Union has already postponed a key part of capital regulations affecting bank trading activities by a year to avoid putting its banks at a disadvantage. In September, the UK announced it would delay the entire plan until 2026.

Reports suggest that Trump's election could force the EU and the UK to relax or further postpone these regulations, although regulators may resist. Jurisdictions that signed reform agreements agreed to meet the adoption standards set by the Basel Committee and could subsequently be scored on their compliance—these reforms date back to the financial crisis.

Despite the murky issues, an excitement has spread across Wall Street as the election results emerged this week. There is growing anticipation for a resurgence in merger and acquisition activity, with banks set to earn substantial fees from facilitating deals. Over the past seven quarters, JPMorgan CFO Jeremy Barnum has repeatedly stated that the regulatory environment has hindered the development of M&A business. Now, bankers expect a quick improvement in deal facilitation and initial public offering (IPO) activities For regional banks, this also brings them back to the negotiating table.

Customer activity surrounding policy changes may also boost trading departments. If Trump's tariff policies come to fruition, it could lead to market volatility. During his first term, Trump occasionally influenced the market with a social media post. Citigroup CEO Jane Fraser stated, "Overall, we expect this to be beneficial for economic growth. As for the investment banking environment, the game has begun."