Donald Trump's Potential Presidency Could Transform Banking Regulations, Says Wells Fargo

A potential second term for Donald Trump could significantly impact large banks, according to a recent analysis by Wells Fargo analyst Mike Mayo.

Regulatory Changes Anticipated

In a research note published on Wednesday, Mayo described a Trump presidency as a likely "regulatory game changer" for the banking industry. According to him, a new Trump administration would promote a system of "more free markets, less harsh oversight, and reduced regulatory risk," which could provide benefits to the financial sector.

These changes are expected to favor banks by enhancing investment banking revenues, supporting loan growth, and fostering a more pro-business climate that would positively affect their profits. Mayo specifically highlighted that Citi is positioned to gain the most from these changes.

Market Reactions Following the Election

As the stock market responded to Trump's victory early Wednesday, shares of banking institutions were among those that experienced substantial gains. JPMorgan Chase shares soared by 8%, Citigroup also rose 8%; Wells Fargo stock jumped 12%; Bank of America shares increased by 7%; Goldman Sachs rose 10%; and Morgan Stanley grew by 9%.

Tax Changes on the Horizon

During his campaign, Trump pledged to lower the corporate tax rate from 21% to 20%. Though this is a minor reduction, each percentage point could yield significant savings for large corporations. As a candidate, Trump has consistently positioned himself in favor of Wall Street and large businesses.

In discussions with top U.S. executives, including JPMorgan CEO Jamie Dimon and Citi CEO Jane Fraser, Trump committed to making the corporate tax cuts from 2017 permanent and reintroducing tax breaks for individuals and small enterprises.

Potential Halts on Regulatory Measures

Another critical issue for banks are the Basel III Endgame requirements set to be enforced by mid-2025, which would require banks to hold a larger cash reserve. Analysts from Bloomberg Intelligence have pointed out that a Trump-led administration might delay the implementation of these capital requirements.

Analysts Nathan Dean and Arnold Kakuda commented, "Former President Donald Trump’s reelection likely prevents any capital increases for banks related to the Basel III Endgame rule. Expected regulatory shifts within the Office of the Comptroller of the Currency in 2025 will probably see efforts to delay these requirements."

They noted that while a diluted version of the rule may be proposed in 2026 or 2027, immediate progress on the Basel III Endgame is likely to be paused.

The original plan anticipated a 19% rise in capital requirements for banks with assets exceeding $100 billion. However, due to pushback from leading U.S. banks, regulators adjusted the proposal in September to a 9% increase in capital levels.

Trump, Banks, Regulations