Wall Street giants eagerly anticipate Trump easing regulations, experts warn: Don't celebrate too soon

According to Zhitong Finance APP, after Donald Trump won the U.S. election, U.S. bank stocks surged significantly as investors bet that Trump would fulfill his promises of tax cuts and easing banking regulations.

There is no doubt that large banks now have a significant amount of excess capital: according to Bloomberg Intelligence, the six largest banks in the U.S. have $124 billion more in capital than required, with JPMorgan alone accounting for $54 billion. Currently, the likelihood of the Federal Reserve and other regulators raising capital requirements is minimal. These regulators are working to align U.S. banking regulations with the global Basel III standards.

However, Bloomberg columnist Paul J. Davies believes that those hoping for Trump to ease regulations may be disappointed. The most significant change that could happen the fastest is that the Trump administration may leave regulators under-resourced to effectively carry out their existing duties. In Davies' view, this is also one of the biggest risks for the banking industry.

Large U.S. banks have capital exceeding current regulatory requirements

The financial industry may not unanimously cheer for Trump's victory, but the assessment of Biden's administration is certainly lukewarm. Biden has appointed tough leaders for the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and the Consumer Financial Protection Bureau. Davies believes that Lina Khan, Gary Gensler, and Rohit Chopra are likely to be replaced. However, this will take months, but it does not mean that all their efforts will be in vain.

Chopra's efforts to curb excessive overdraft fees, which have cost banks billions in revenue, are likely to be reversed. The stricter reporting and transparency rules introduced by Gensler's SEC are very unpopular among private equity firms and hedge funds.

The FTC, led by Khan, is considered the culprit behind the cooling of merger and acquisition (M&A) activity and initial public offerings (IPOs) in the U.S., especially those related to technology companies and private equity. One of JPMorgan's top tech bankers, Madhu Namburi, stated on Tuesday that he expects a wave of IPOs and M&A activity after Trump returns to the White House. However, Bloomberg columnist Chris Hughes points out that the political situation is far more complicated than bankers hope, especially with JD Vance potentially serving as vice president. Vance has reportedly criticized large tech companies for exerting too much power and influence over politics. He has also praised the Biden administration's antitrust enforcement.

The issue of bank capital rules is even more complicated. Davies believes that Michael Barr, the Federal Reserve's vice chair for bank supervision, is unlikely to be easily ousted like the leaders of other agencies According to reports, when asked whether he might be forced to resign after Trump takes office, Barr stated that he plans to serve his full term. His term as Vice Chairman for Supervision of the Federal Reserve will end in July 2026.

Barr attempted to do too much in the initially proposed "Basel III Endgame" proposal, but there were too many contradictions. In September, he outlined reforms to reduce the expected average increase in capital requirements for large banks from nearly 20% to below 10%. If that number is 5%, banks might accept it; as it stands, they may continue to resist.

Barr's proposal may be adjusted to maintain international consistency and ensure transparency regarding operational risks such as fraud or IT failures, while limiting banks' ability to circumvent rules using their own risk models.

However, Davies believes that the key lesson from the failures of Silicon Valley Bank and other banks last year is not that banks are undercapitalized or that regulation is too lax, but rather that regulatory downgrades mean these banks cannot escape bad practices and dangerous business models. This weakness is a legacy of Trump's first term; given his commitment to cutting public budgets, it will become one of the biggest threats he faces in his second term.

Finally, Davies warns that banks and investors are cheering for the prospect of deregulation, but they should proceed with caution. A lack of regulation will inevitably lead to disaster sooner or later—this is common—and they will suffer the backlash