US Banks to Benefit Under Trump

US banks are expected to benefit from a looser capital regime as President-elect Donald Trump returns to the White House, as reported by Reuters.

With Trump's leadership, industry experts foresee relaxed capital and merger policies under Republican regulators. This likely includes reducing restrictions from the Basel III endgame proposal, which mandates large banks to hold additional capital against risky loans. "The Basel endgame rule could be completely dead," Gene Ludwig, CEO of Ludwig Advisors, speculated.

If this regulatory shift occurs, major lenders could use more capital for lending or share buybacks, signaling a favorable outlook for investors. This news has already impacted stock movements, with the KBW Banks Index reaching near all-time highs on presumptions of eased capital requirements.

As Trump selects new regulators, a banking analyst noted that "this is like an earthquake for bank M&A," as regulatory changes may facilitate mergers and acquisitions in the banking sector. Many believe the potential for consolidation will empower smaller banks. Others have pointed to uncertainties such as trade wars, inflation, and protectionist policies, which could present challenges for future dealmaking.

The regulatory pullback may not impact all areas of banking, however. Some, such as Meg Tahyar, Head of Financial Institutions at Davis Polk, have suggested that strict supervision on issues like "junk fees" is likely to continue.