As the election approaches, Wall Street analysts are predicting that if Trump wins again, bank stocks could benefit from a more relaxed regulatory environment and higher interest rate expectations. Analysts noted that the new government is expected to reduce antitrust reviews, which may create a more friendly environment for bank mergers and acquisitions, while also boosting long-term interest rates, thereby improving banks' profitability prospects. The latest report indicates that major global systemically important banks, such as JPMorgan Chase, Bank of America, Wells Fargo, and Goldman Sachs, are expected to benefit from the easing of Basel III rules, particularly as the risk-weighted asset inflation might be further diluted before they are finalized.
This policy direction may also lead to fiscal stimulus, pushing long-term Treasury yields higher, which is extremely favorable for the interest rate environment of banks. Banks’ fixed rate assets will have an opportunity for repricing, and rising rates will boost their fundamentals. Analysts believe some banks will become the biggest beneficiaries, including those focusing on retail and consumer loans, which will see net interest margin growth in a high-interest-rate environment.
Regarding credit, the market's expected rates won't exceed a certain range, and the risk of commercial real estate will be relatively controllable. Analysts pointed out that the steep trajectory of five-year and long-term Treasury yields might pressure parts of the credit sector, but as long as overall rates remain within expected ranges, the growth of commercial real estate risk won't be significant.
Market expectations for higher tariffs could lead the federal funds rate to be raised to a higher level than anticipated. By the end of 2025, the market expects rates to reach 3.75% to 4.00%, which is 100 basis points higher than previous expectations. Analysts warn that a steeper yield curve under high tariffs is not ideal and could impact banks' book value and potentially slow loan growth.
At the same time, deregulation is expected to help banks under strict regulation reduce their compliance burdens, providing a clearer path out of difficulties. Although future loan growth expectations are optimistic, analysts remain cautious about actual growth prospects, especially in a rising rate environment, as the rebound in corporate financing activities may not directly translate into large-scale loan growth.
Changes in consumer finance are also under scrutiny. The new government is expected to withdraw proposals to reduce credit card late fees, which will benefit all credit card issuers, particularly some smaller financial companies. Overall, the dual push of deregulation and fiscal stimulus could bring potential benefits to the banking sector if Trump is re-elected.
