Trump’s first-day deregulation pledge excited bankers, but legal restrictions and crypto transformations loom on the horizon.
Donald Trump hates government regulation of private business. In his successful re-election campaign, he promised to repeal ten US federal regulations for every new regulation imposed, adding: “We will be able to do this quite easily.” He has recruited billionaire backers Elon Musk and Vivek Ramaswamy to head a new Department of Government Efficiency (DOGE).
Banks and the broader financial industry hope to be the main beneficiaries. “A lot of bankers are dancing in the streets” on the promise of deregulation, Jamie Dimon, chief executive of industry giant JPMorgan Chase, commented days after the election.
U.S. banking laws tend to be written in general terms, leaving a wide range of regulatory bodies little latitude to interpret and enforce specific details. So, it may seem easy for an incoming president like Trump to fix the rules of the game.
“A lot can happen on day one,” says Max Bonnici, a partner who advises financial institutions at the law firm Davis Wright Tremaine. “They could very quickly begin to reverse the regulatory ecosystem that the Biden administration has built.”
But as Trump’s inauguration on January 20 approaches, details remain elusive.
“Is anything clear yet?” Christopher Wolfe, who oversees US banks for Fitch Ratings, asks rhetorically. “No is the short answer.”
It may not be easy to get rid of the current ecosystem.
President Joe Biden has accelerated the “regulatory supercycle” that began with the 2008 financial crisis and subsequent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. An example is Gene Ludwig, who served as Comptroller of the Currency, a high-level regulatory position at the Treasury Department, in the 1990s, and now consults with industry.
For President Bill Clinton, Ludwig wrote an 11-page regulation for the Fair Lending Act, the Community Reinvestment Act. The Biden administration added a 115-page “supplement.” “Regulations grow like barnacles on a ship,” Ludwig notes. “Every now and then, you need to scrape it so the ship doesn’t sink.”
However, Trump officials won’t be able to get away with it as they please.
Another little-known law, the Congressional Review Act, allows outright repeal only for very recent regulations, notes Stephen Bala, co-director of the Center for Regulatory Studies at George Washington University. The effective date of a Trump administration will be approximately August 1, 2024.
With that deadline in mind, the Biden team made last April and May “the most active month or two in 40 years” in writing the rules, Bala says. He added: “Trump’s widespread deregulation is not realistic.”
Getting the organizational balance right is not an easy task either. “Effective deregulation must be done with a scalpel, not a meat axe,” says Ludwig.
Given these constraints, easing restrictions on banks in the near term will likely favor regulation that has been in the works but not yet included.
“Our view is that current regulation will not be significantly reduced,” says Stuart Placer, a senior manager who monitors US banks at Standard & Poor’s Global.
Basel III: “partially or completely destroyed”
However, the rollback from pending regulation could be significant, especially for larger banks affected by the so-called Basel III endgame.
Even more than congressional resolutions, the global Basel III accords on financial governance, which have crept forward since their introduction in 2010, constitute broad guidelines that leave it to national regulators to fill in the details. The final stage calls for a “fundamental review of the trading book,” to ensure that trading losses do not affect the “banking transaction book,” which includes government-insured deposits, and that trading operations are sufficiently strengthened against their various risks.
In 2023, Michael Barr, head of oversight of the Federal Reserve, issued a draft rule that bankers estimate would have raised capital requirements for the largest institutions by 19%. After vocal protest from the industry and many lawmakers, he reduced that to an estimated 9% last September.
While Barr and his boss, Fed Chairman Jerome Powell, have promised to complete their terms until mid-2026, banking watchers believe Trump could force him to further ease Basel III requirements, if not abandon them entirely.
“Basel III will be partially or completely destroyed,” predicts Jeb Beckwith, managing director at industry consultancy Greenpoint Global.
Second-tier banks, which in the US means those with between $100 billion and $250 billion in assets, may be evading a raft of new regulations that have been brewing for three of their peers, Silicon Valley Bank, Signature Bank, and First Republic Bank. It collapsed in the spring of 2023.
The initiatives have faltered amid industry opposition and disagreements over the real reason behind the collapse of regional banks. Bonnici expects the next administration will shelve most of them.
“After the failures of 2023, regulators were pushing through oversight with a fine-tooth comb rather than on a risk-based basis,” he says. “All of this will be reviewed, and then most of it will be resolved.”
Banks also expect a friendlier government stance toward mergers and acquisitions in their industry under Trump 2.0, says Rodney Lake, who teaches finance at George Washington University’s business school. “The Trump deal we are looking at is more mergers and acquisitions in the banking sector.”
The US government’s main gatekeepers are the Federal Trade Commission and the Justice Department’s antitrust division, where Biden appointees have increased scrutiny of proposed mergers. The entire financial industry took notice when these watchdogs forced credit card giant Visa to abandon its $5.3 billion acquisition of fintech Plaid in 2021, Lake noted.
The Ministry of Justice issued stricter guidelines on bank mergers in 2023, replacing a system that had been in place since the 1990s. Washington’s hostile stance may have nipped many potential deals in the bud, says Standard & Poor’s Blaser: “There has certainly been a muted side to mergers and acquisitions. Managements have thought about whether it’s worth starting if The takeover may eventually be rejected.
More correction than revolution?
The most controversial changes in financial regulation under the second Trump administration will likely relate to cryptocurrencies.
Crypto-related companies that sell tokens like Dogecoin — the namesake of Musk and Ramaswamy’s government efficiency department — spent more than any other industry on the 2024 election campaign, at least $130 million, and backed the winners in 54 out of 58. Race, according to Stephen Gannon. Bonnici’s colleague at Davis Wright Tremaine. Trump himself, who was once a crypto skeptic, is now backing his own Trump Coin and vowing to turn the United States into the “crypto capital of the planet.” His pick to chair the SEC, Paul Atkins, supported “the SEC being more flexible and dealing directly” with cryptocurrency operators.
This promises a about-face from outgoing SEC Chairman Gary Gensler, who had largely barred digital asset providers from residency in the United States. Not everyone outside the regulatory sphere is happy with Trump’s embrace of cryptocurrencies either. “The last thing we need is to inject a whole new risk into a system whose main use is untraceable illegal activity,” says Sanjay Sharma, president of GreenPoint Global.
However, beyond cryptocurrencies, the upcoming changes in financial regulation are likely to be more of a correction than a revolution. Trump and the new Republican leadership in Congress may succeed in stemming the wave of regulation that began in 2008, but reversing that, through major changes to the Dodd-Frank Act, for example, is less likely.
Ludwig says Trump will not mitigate the fundamental structural challenge facing US banks: the continuing loss of market share to private credit providers, mortgage “originators,” and other unregulated entities. “The crux of the problem for banks is that it is very difficult to compete with non-banks,” he points out. So, while bankers may enter 2025 with a new spring in their step, they’ve probably stopped dancing in the streets now. This is a good thing from a banking soundness point of view, says Fitch’s Wolff: “Creditors have benefited from good, strong regulation. We view the regulatory agenda with some caution.”
