Banks Eye Trump Regulatory Reprieve, Starting With Capital Rules

Inside the biggest US banks, the mood ranged from cautious optimism to jubilant this week as they eyed the prospect of relief from their common foe: the Biden-era regulators.

Harsher regulation in recent years, led by the proposed higher capital rules known as Basel III Endgame, united the industry in defiance as it fought back like never before. The big banks and the trade associations that represent them poured millions of dollars into a lobbying effort, and scored a concession when the Federal Reserve said it would unveil a softer version.

That version still hasn’t seen the light of day. Now, senior industry executives are viewing it as all but dead, even as regulators have maintained they’d work toward implementing a proposal no matter who won the election. 

“In the unlikely event that they could agree on a new proposal, there is no time to put it out and act on it before the new administration gets established,” said Betsy Duke, a former Fed governor who later chaired Wells Fargo & Co.’s board.

The incoming Trump administration would in theory be able to replace heads of the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau on day one, at least on an interim basis. Both of those officials are crucial to the process to propose and enact the new regulations, and banks are already seizing the moment to begin advocating for appointments seen as more friendly to the industry.

Representatives for the Federal Reserve, the OCC and the Federal Deposit Insurance Corp. — the agencies behind the proposal last year — declined to comment.

Fed officials have for months maintained their commitment to getting new rules in place, regardless of the election outcome. Fed Chair Jerome Powell said at a hearing in July that “the point of it is to get it right, not to do it quickly.”

Vice Chair for Supervision Michael Barr echoed that in September: “The Federal Reserve is an independent agency,” he said. “We’re not paying attention to the election cycle in terms of any of our work that we do. And I’m not paying attention to it for this purpose.”

Transition Chatter

Within hours of Donald Trump’s victory, text chains were alive with chatter about potential transition names, according to one executive, who declined to be identified speaking publicly about the matter. Another described the prospect of Trump regulation compared to the current situation as “night and day.” 

Bank stocks soared Wednesday: The 24-firm KBW Bank Index climbed more than 10%. Shares in JPMorgan Chase & Co., which has notched record after record this year, hit yet another one. Wells Fargo’s stock finally broke through a 2018 high it struck before the Fed imposed an asset cap — to close above $70 for the first time ever.

An executive at one top bank said they’re expecting a more predictable regulatory environment that’s less driven by enforcement actions and public campaigns, and more focused on clear rules. However, they cautioned that they expected regulators may push a public agenda that could kneecap diversity and inclusion efforts, as well as investments tied to environmental, social and governance metrics.

The apparent wins for banks weren’t just tied to the presidential election result. Senate Banking Chairman Sherrod Brown, an Ohio Democrat and longtime Wall Street foe, was ousted in favor of Republican Bernie Moreno. That contributed to Republicans winning a Senate majority, and they’re in striking distance of retaining the House of Representatives as well.

No Cake Walk

Still, Wall Streeters aren’t expecting a complete cake walk. While the expectation is for a softer touch across the board, some Republicans favor tighter capital rules. The latest plans would require the eight biggest banks to raise their capital by 9% - about half what was originally put forward by regulators.

If the plan is jettisoned or significantly dialed back again, it could complicate matters overseas. The European Union has already delayed a key part of its capital rules that affect banks’ trading activities by a year so that its banks won’t be at a disadvantage. The UK said in September that it would delay its entire package until 2026. 

Trump’s election win may pressure both the EU and the UK to relax them or again delay them — which regulators will likely resist, Bloomberg reported. Jurisdictions that signed on to the reforms, which date back to the financial crisis, agreed to meet standards of adoption set by the Basel committee and can later be scored on their compliance.

There’s also the question of populist influences in the incoming Trump administration and the Republican party as a whole. 

As a senator, Vice President-elect JD Vance signed onto legislation that would cap credit card swipe fees — deeply unpopular among big banks. He also used his time in a congressional hearing last year to press the chief executive officers of the largest lenders on what he called “woke actions.”

“Nobody elected you,” Vance told the group, which included JPMorgan CEO Jamie Dimon, Goldman Sachs Group Inc. CEO David Solomon and Citigroup Inc. CEO Jane Fraser. “Stay out of public policy unless it affects your core business interests, because if you don’t it’s going to be a lot harder for us to see you guys as neutral arbiters and neutral actors in the American financial system.”

Deals Boost

But despite the looming questions, a sense of ebullience emerged across Wall Street as the election results rolled in this week. The Biden administration’s scrutiny on mergers and acquisitions has cast a chill over a long-awaited dealmaking comeback — and the juicy fees banks earn from arranging them. 

In each of the last seven quarters, JPMorgan CFO Jeremy Barnum has cited the regulatory environment as a hamper on that business. Now, bankers are expecting an imminent pickup in dealmaking and initial public offerings. For regional banks, that also puts tie-ups with each other back on the table. 

Trading desks could also see a boost from client activity around policy shifts. If Trump’s tariff policies — which would slap a 60% levy on goods from China and 20% on everything else — become reality, that could translate to market swings. During his first administration, Trump would occasionally move markets with a single social media post. 

“We’re expecting, broadly, this to be pro-growth and beneficial,” Citigroup CEO Fraser said Friday in a CNBC interview. As for the investment banking environment, “it’s game on.”

With assistance from Katherine Doherty, Katanga Johnson and Laura Noonan.

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