Trump’s day-one deregulation vow thrills bankers, but legal constraints and crypto shifts loom large.
Donald Trump hates government regulation of private business. In his successful campaign for re-election, he promised to repeal 10 US federal regulations for every new one imposed, adding, “We’ll be able to do that 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 prime beneficiaries. “A lot of bankers are dancing in the streets” at the promise of deregulation, Jamie Dimon, CEO of industry giant JPMorgan Chase, commented days after the election.
US banking laws tend to be written in broad terms, leaving an array of regulators ample scope to interpret and enforce the specifics. So, it might look easy for an incoming president like Trump to overhaul the rules of the game.
“A lot can happen on Day One,” says Max Bonici, a partner advising financial institutions at law firm Davis Wright Tremaine. “They can make a very fast start reversing the regulatory ecosystem that the Biden Administration built.”
But as the clock ticks toward Trump’s January 20 inauguration, specifics remain elusive.
“Is anything clear yet?” Christopher Wolfe, who oversees US banks for Fitch Ratings, asks rhetorically. “No is the short answer.”
And the existing ecosystem may not be so easy to get rid of.
President Joe Biden did accelerate the “regulatory supercycle” that started with the 2008 financial crisis and subsequent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Offering an example is Gene Ludwig, who served as comptroller of the currency, a top Treasury Department regulatory post, in the 1990s, and now consults with the industry.
For President Bill Clinton, Ludwig wrote an 11-page regulation for a fair-lending statute, the Community Reinvestment Act. The Biden Administration added an “extension” that ran to 115 pages. “Regulations grow up like barnacles on a ship,” Ludwig observes. “Periodically, you need to scrape them so the ship doesn’t sink.”
Trump officials won’t be able to scrape away at will, however.
Another little-known law, the Congressional Review Act, permits outright nullification only of very recent regulations, notes Steven Balla, co-director of the Regulatory Studies Center at George Washington University. The effective date for the Trump Administration will be around August 1, 2024.
With that deadline in mind, Biden’s people made last April and May “the most active month or two in 40 years” for rules writing, Balla says. “A massive wipeout of regulations by Trump is just not realistic,” he added.
Getting the regulatory balance right is no simple task, either. “Effective deregulation needs to be done with a scalpel, not a meat ax,” Ludwig argues.
Given these constraints, short-term relief for banks is likely to favor regulation that was in the pipeline but not yet on the books.
“Our take is that existing regulation will not see a significant rollback,” says Stuart Plesser, a senior director monitoring US banks at S&P Global.
Basel III: “partially or fully gutted”
Rollbacks of pending regulation could be significant, however, especially for the larger banks affected by the so-called Basel III Endgame.
Even more than acts of Congress, the global Basel III accords on financial governance, which have crept forward since their 2010 introduction, are general guideposts that leave national regulators to fill in the details. The latest stage calls for a “fundamental review of the trading book,” to assure that trading losses do not impact the “banking book,” which includes government-insured deposits, and that trading operations are sufficiently bolstered against their various risks.
In 2023, Federal Reserve Board supervision chief Michael Barr issued a draft rule that, bankers estimated, would have pushed up capital requirements for the biggest institutions by 19%. After vocal protest from the industry and many legislators, he scaled that back to an estimated 9% last September.
While Barr and his boss, Fed chair Jerome Powell, have promised to serve out their terms until mid-2026, bank watchers think Trump could force him to moderate Basel III requirements still further, if not abandon them entirely.
“Basel III will be partially or fully gutted,” predicts Jeb Beckwith, managing director at industry consultant GreenPoint Global.
Second-tier banks, which in the US means those holding between $100 billion and $250 billion in assets, may dodge a raft of new regulation that has been brewing since three of their peers, Silicon Valley Bank, Signature Bank, and First Republic Bank, collapsed in spring 2023.
The initiatives have faltered amid industry pushback and differences as to what really caused the regional bank implosions. The incoming administration will shelve most of them altogether, Bonici expects.
“After the 2023 failures, regulators were pushing oversight with a fine-tooth comb rather than on a risk basis,” he says. “All that is going to be reviewed, then most of it unwound.”
Banks are also expecting a more friendly government stance toward mergers and acquisitions in their industry under Trump 2.0, says Rodney Lake, who teaches finance at The George Washington University School of Business. “The Trump trade we are looking at is more M&A in the banking sector.”
The key US government gatekeepers are the Federal Trade Commission and the Justice Department’s Antitrust Division, where Biden appointees have increased scrutiny of proposed mergers. The whole financial industry took note when these watchdogs forced credit card giant Visa to abandon a $5.3 billion acquisition of fintech Plaid in 2021, Lake notes.
The Justice Dept. issued stricter guidelines on banking mergers in 2023, superseding a regime that had been in place since the 1990s. The hostile attitude from Washington may have nipped many would-be deals in the bud, says S&P’s Plesser: “There has definitely been a muted aspect to M&A. Managements considered whether it was worth starting if the acquisition could be denied in the end.”
More correction than revolution?
The most contentious changes in financial regulation under a second Trump administration will likely concern cryptocurrency.
Crypto-related firms peddling tokens like Dogecoin—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 winners in 54 out of 58 races, according to Stephen Gannon, Bonici’s colleague at Davis Wright Tremaine. Trump himself, once a crypto skeptic, is now backing his own TrumpCoin and pledges to transform the US into the “crypto capital of the planet.” His pick to head the Securities and Exchange Commission, Paul Atkins, has supported “the SEC being more accommodative and dealing straightforwardly” with crypto operators.
That promises an about-face from outgoing SEC chair Gary Gensler, who largely denied US domicile to digital asset providers. Not everybody outside the regulatory sphere is pleased with Trump’s embrace of crypto, either. “The last thing we need is to inject a whole new risk into the system whose main use is untraceable illegal activity,” says Sanjay Sharma, GreenPoint Global’s chairman.
Aside from crypto, however, upcoming changes to financial regulation will likely be more correction than revolution. Trump and Congress’s new Republican leadership may well stem the tide of regulation that started in 2008, but reversing it, by major amendments to Dodd-Frank, for instance, is less likely.
Nor will Trump alleviate US banks’ essential structural challenge, says Ludwig: A steady loss of market share to private credit providers, mortgage “originators,” and other unregulated entities. “The nub of the problem for banks is that it’s very hard to compete with non-banks,” he observes. So while bankers may enter 2025 with a new spring in their step, they have probably stopped dancing in the streets by now. That is just fine from the point of view of banking safety, says Fitch’s Wolfe: “Creditors have benefited from good and robust legislation. We view the deregulatory agenda with some caution.”
