US banks have a lot riding on the outcome of Election Day even though they are not 100% sure how the candidates will treat the industry.
The “knee-jerk reaction,” according to KBW analyst Chris McGratty, is that Donald Trump’s victory will lead to a return to looser bank regulation and easier approval of the type of corporate mergers that generate huge profits for Wall Street giants.
Kamala Harris’ victory, on the other hand, could mean that a more aggressive period of oversight of the nation’s largest financial institutions under President Joe Biden will continue.
The screen shows the presidential debate between former President Donald Trump and Vice President Kamala Harris on September 10. REUTERS/Adam Gray ·REUTERS / Reuters
“In the investor conversation, it seems like people are pricing in Trump,” McGratty told Yahoo Finance. “So initially, if the election went to Harris, I would think the bank would sell,” he said.
The nation’s largest lender had a good year thanks to economic resilience during a period of high interest rates and a rebound in its banking and investment trading operations. The outlook for next year could also be good, if debt and Wall Street dealmaking are higher as interest rates fall.
An index tracking the 24 largest domestically chartered U.S. commercial banks ( ^BKX ) is up 27% so far this year, outperforming the financial sector and major stock indexes.
Other indices for the financial sector (XLF), Nasdaq Composite (^IXIC), S&P 500 (^GSPC) rose 24%, 21% and 20% respectively.
The consensus among industry observers is that a Trump White House may be better for financial stocks. After all, the bank’s stock rose 20% three months after Trump was elected in 2016.
But the challenge for bank executives when they assess the impact of the new president is that neither Trump nor Harris has said much about how they are going to Washington to oversee the largest banks in the US.
So instead of a track record that has generally spoken for them.
The Trump administration has in the last decade delivered big corporate tax cuts, and has also rolled back some of the big bank regulations imposed after the 2008 financial crisis.
Harris, on the other hand, has been cited as his clash with big banks when he was California attorney general as an example of his willingness to take on powerful interests.
One unknown is what the administration will do with a new set of controversial capital rules proposed by top bank regulators that would require lenders to set aside larger buffers for future losses.
These requirements are based on international capital requirements known as Basel III that were implemented in the decade following the 2008 financial crisis.
Banks have fought this US proposal for the past year in an aggressive public campaign and have even hinted at suing regulators if they don’t get their way.
They won a big victory in September when some regulators said they would water down the requirements. But not all regulators appear on board with that plan, putting the final version in doubt.
Some in the industry expect regulators to scrap the proposal if Trump wins.
“If you’re looking at how Trump sees the world, I think there’s a lack of cooperation with international standard setters,” Allen Puwalski, chief investment officer at Cybiont Capital, told Yahoo Finance.
“And I think you see the U.S. coming back from Basel III.”
And Harris’ win means the proposal to increase the bank’s capital likely won’t “change much,” according to Ian Katz, managing director at Capital Alpha Partners.
“If Harris wins, I expect regulators to sit down to evaluate the proposal and try to move forward,” he said.
Vice chairman of the Federal Reserve for supervision Michael Barr, one of the architects of the new proposed capital rules for big banks. REUTERS/Kevin Lamarque ·REUTERS / Reuters
But Katz is also quick to point out that even with Trump’s win, a friendlier regulatory climate for the biggest lenders is unlikely and certainly won’t be called for.
“You can’t assume that every Republican today is going to do favors for the biggest banks,” he said.
KBW predicts that on the first day of the Trump administration it could make eight leadership changes at the federal regulatory agency that oversees various corners of the financial services industry.
These include the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), the Securities and Exchange Commission and possibly the Federal Deposit Insurance Corporation, if Biden’s candidate Christy Goldsmith Romero is not confirmed in the end. of the year.
The new leader will also take over the Justice Department and the Federal Trade Commission, which will make it easier for giant companies to merge without antitrust concerns.
KBW expects significant changes at the Federal Reserve in 2026, when Fed chairman Jerome Powell’s term ends.
Perhaps more relevant to the banking industry is that 2026 is also the end of the term for Michael Barr as deputy chairman of supervision. Barr is the architect of the new bank capital rules and one of the industry’s main antagonists.
The Washington Post has reported that bank executives and former Fed officials expect Trump to demote Barr, who was appointed by Joe Biden and a Treasury official under Barack Obama.
It is not known whether Trump has the legal authority to carry out the move, the Post reported.
Some big bank executives are clearly not fans of today’s Biden-era regulators.
The CEO of JPMorgan Chase (JPM) Jamie Dimon last week called the raft of regulatory proposals from the supervisor “attack,” criticized CFPB director Rohit Chopra, and made it clear that the industry is willing to push back the new rules in court.
“It’s time to fight back,” Dimon said while speaking at the American Bankers Association convention in New York City. “I already have this sh*t.”
JPMorgan Chase CEO and Chairman Jamie Dimon speaks before a Senate committee on 2023. REUTERS/Evelyn Hockstein/File Photo ·REUTERS / Reuters
“We don’t want to get involved in litigation just to make a point,” he added, “but I think if you’re in a knife fight, you better bring a knife.”
No matter which candidate takes the country’s top job, some bankers are confident that the election will not determine an industry full of institutions that have undergone changes for at least a century.
“We’ve done this through World Wars, money panics, depressions, the Texas crisis in the 80s, the great financial crisis and COVID,” Phil Green, CEO of San Antonio-based Frost Bank, told Yahoo Finance. Frost is 156 years old. .
“We are kind of like cockroaches in a way. We will still be here, at least we plan,” he added.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas of finance.
Click here for in-depth analysis of the latest stock market news and stock price moving events.
Read the latest financial and business news from Yahoo Finance
Your Trusted Source for Accurate and Timely Updates!
Our commitment to accuracy, impartiality, and delivering breaking news as it happens has earned us the trust of a vast audience. Stay ahead with real-time updates on the latest events, trends.
