U.S. banks have a lot to do with the outcome of Election Day, even if they aren’t 100% sure how either candidate will handle their industry.
The knee-jerk reaction, says KBW analyst Chris McGratty, is that a Donald Trump victory will mean a return to looser regulation of banks and more leniency in approving the kind of corporate mergers that yield big profits for Wall Street giants.
A Kamala Harris victory, on the other hand, could mean that a more aggressive period of oversight of the nation’s largest financial institutions will continue under President Joe Biden.
“In my conversations with investors, I definitely feel like people are taking Trump into account,” McGratty told Yahoo Finance. “So initially I would think that the banks would sell their shares if the election went to Harris,” he added.
The country’s largest lenders have had a banner year thanks to the economy’s resilience during a period of high interest rates and a recovery in their investment banking and trading businesses. The hope is that next year could also be good, as lending and dealmaking on Wall Street increase while interest rates fall.
An index tracking 24 of the largest domestically chartered U.S. commercial banks (^BKX) is up 27% so far this year, outperforming the broader financial sector and major stock indexes.
Those other financial sector indices (XLF), Nasdaq Composite (^IXIC), S&P 500 (^GSPC) are up 24%, 21% and 20% respectively.
The consensus among industry observers is that a Trump White House may be more favorable to a rise in financial stocks. After all, bank stocks rose 20% in the three months after Trump was elected in 2016.
But the challenge for bank executives in assessing the impact of a new president is that neither Trump nor Harris have said much about how they want Washington to supervise the largest banks in the US.
So instead, their track records have largely spoken for them.
The Trump administration of the past decade has implemented major corporate tax cuts, and also rolled back some rules on big banks imposed in the wake of the 2008 financial crisis.
Harris, by contrast, has touted her clash with big banks when she was California’s attorney general as an example of her willingness to take on powerful interests.
One big unknown is what both governments would 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.
The requirements are based on an international set of capital requirements known as Basel III, imposed in the decade after the 2008 financial crisis.
Banks have fought this U.S. proposal in an aggressive public campaign over the past year, even dropping hints about suing regulators if they don’t get their way.
They scored a big victory in September when some regulators said they would weaken those requirements. But not all regulators seem to support that plan, putting the final version in doubt.
Some in the industry expect regulators will scrap the proposal if Trump wins.
“If you look at how Trump views the world, I think you see less cooperation with international standard setters,” Allen Puwalski, chief investment officer at Cybiont Capital, told Yahoo Finance.
“And I think you will see the US back from Basel III.”
And a Harris victory means the bank capital increase proposal is unlikely to “change that much,” said Ian Katz, managing director at Capital Alpha Partners.
“If Harris wins, I expect the regulators to sit down and reassess the proposal and try to move forward,” he added.
But Katz is also quick to point out that even with a Trump victory, a friendlier regulatory environment for the largest lenders cannot be guaranteed and certainly will not be touted.
“You can’t assume that every Republican these days is going to do favors for the biggest banks,” he added.
KBW predicts that a Trump administration could make as many as eight leadership changes on its first day at federal regulators that oversee various corners of the financial services industry.
That includes the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), the Securities and Exchange Commission and possibly even the Federal Deposit Insurance Corporation, if Biden nominee Christy Goldsmith Romero is not confirmed by the end . of the year.
New leaders would also take over the Justice Department and the Federal Trade Commission, which would likely make it easier for giant companies to merge without running into antitrust problems.
KBW expects significant changes at the Federal Reserve in 2026, when Jerome Powell’s chairmanship of the Fed ends.
Perhaps more relevant to the banking industry, 2026 also marks the end of a term for Michael Barr as vice chairman of supervision. Barr is the architect of the new capital rules for banks and one of the industry’s leading opponents.
The Washington Post has reported that bank executives and former Fed officials expect Trump to demote Barr, a Joe Biden appointee and Treasury Department official during the Barack Obama era.
It is not known whether Trump would have the legal power to take such a step, the Post reported.
Some big bank executives are clearly not fans of the current Biden-era regulators.
JPMorgan Chase (JPM) CEO Jamie Dimon this past week called a series of regulatory proposals from his regulators “an attack,” criticized CFPB Director Rohit Chopra and made clear the industry is ready to push back on new rules in court.
“It’s time to fight back,” Dimon said during a speech at an American Bankers Association conference in New York City. “I’m done with this shit.”
“We don’t want to get involved in a lawsuit just to make a point,” he added, “but I think if you’re in a knife fight you better bring a knife.”
Whichever candidate takes the country’s top spot, some bankers are convinced the election will not result in a sector full of institutions that have weathered at least a century of change.
“We’ve done this through world wars, money panics, depressions, the collapse of Texas 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 like cockroaches in that respect. We will still be here, at least that is our plan,” he added.
David Hollerith is a senior reporter for Yahoo Finance, covering banking, cryptocurrency and other areas of finance.
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