Bank Regulation

Will Big Banks Get a Bottom Line Boost on Deregulation?

Banks’ bottom lines may get a boost from deregulation from Capitol Hill.

Barron’s noted this past weekend that a spate of proposals to roll back at least some regulatory requirements would, should they make it across various legislative hurdles, make lending a bit easier and increase the number of ways banks can put money to work.

Barron’s stated that the options on the table are divided across two camps, namely, those that need congressional approval  and those that do not. The Treasury Department has issued a spate of recommendations that do not in fact require approval from Congress.  That might be at least some salve for banks even as Dodd-Frank may not get the scrutiny and then overhaul of Dodd-Frank that some might have expected as Donald J. Trump assumed the presidency and Republicans swept Congress.

As noted by the financial publication, one Street analyst had a sanguine take on the chances of at least some regulations being dismantled, as roughly two-thirds of the Treasury recommendations can be codified without Congress: Those recommendations “for the most part make good common sense, don’t affect the safety and soundness of the banking system, and stand a reasonable chance of taking place,” said Evercore ISI analyst Glenn Schorr.  As Barron’s noted, two analysts with KBW, Brian Kleinhanzl and Michael Brown have estimated that some of the heaviest heavyweights in the sector – including Morgan Stanley, Goldman Sachs Group and JPMorgan, among others – may see earnings rise cumulatively as much as 30 percent.   Among the changes that would goose those bottom lines are reducing the excess capital requirements.

As for trading activities restricted by the Volcker Rule, a wholesale rollback is not in the cards as it would have to be passed by Congress, but Barron’s noted that there could be some modification in the future, which would come as the Treasury has stated that simplifying prop trading (as it is known) could let firms use more of their own capital to boost returns.

In the meantime, Capitol Hill, and the Trump administration, have to shore up some vacancies at the top regulatory posts in the nation. Amid those roles, Randal Quarles has recently been tapped to help lead bank supervision as part of the Federal Reserve’s board.

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