On the first trading day after Trump's election victory, $Bank of America (BAC.US)$Please use your Futubull account to access the feature.$Citigroup (C.US)$Please use your Futubull account to access the feature.$Wells Fargo & Co (WFC.US)$ soared by 8.42%, 8.4%, and 13% respectively, while investment banks $Goldman Sachs (GS.US)$Please use your Futubull account to access the feature.$Morgan Stanley (MS.US)$ Rising by 13% and 11%, the stock price hit a historic high. As of the close of trading on Thursday, November 7th, consisting of 24 companies. $KBW Nasdaq Bank Index (.BKX.US)$ The increase has been 36.76% year-to-date.

With Trump's election victory, the 'Trump trade' is gradually transitioning from 'victory trade' to 'policy 2.0 trade.' Investors will hope for Trump to weaken financial regulations, including reducing capital requirements, and maintaining the credit card late fee policy. Trump also pledged to reform major regulatory agencies and promised to dismiss regulators including Gary Gensler, the chairman of the SEC. Analysts point out that Trump's victory will lead to the largest changes in federal financial regulatory institutions in U.S. history.

The Federal Reserve has initiated a rate-cutting cycle, and the recent environment of declining interest rates has been more favorable for the U.S. banking industry. Trump's election victory is actually a boost for the U.S. banking sector. If the Trump government 2.0 can implement the weakening of financial regulations, relaxing regulations can lower banks' operating costs, increase profitability, and further stimulate the development of banking operations.

Trump's financial policy.

Looking back at history, bank stocks rose by 20% in the three months after Donald Trump was elected in 2016, which was closely related to the series of laws he introduced during his term, such as the "Economic Growth, Regulatory Relief, and Consumer Protection Act".

The "Economic Growth, Regulatory Relief, and Consumer Protection Act" and other laws aim to relax the strict regulatory requirements of the Dodd-Frank Act on the financial industry, especially small and medium-sized banks, including exempting certain banks from the Volcker Rule (relaxing bank proprietary trading), simplifying mortgage regulations, and gradually exempting financial institutions with assets under $250 billion from systemic importance requirements.

The latter Dodd-Frank Act was signed by Obama in July 2010 and is hailed as the largest financial reform act in the United States since the Great Depression of the 1930s. It was born against the backdrop of the economic and financial devastation following the subprime crisis. The enactment of this act aims to effectively control systemic risks, protect taxpayers and consumer interests, maintain financial stability, and prevent another financial crisis.

However, since the enactment of the Dodd-Frank Act, the Republican Party has been critical of it, believing that the law does not reform Wall Street, and may even bring additional compliance costs to the financial industry, affecting financial support for the economy, jeopardizing the U.S.'s international financial center status, and weakening the competitiveness of American financial institutions.

After the Biden administration took office, it did not overturn the "Economic Growth, Regulatory Relief, and Consumer Protection Act", but openly emphasized the partial repeal of the act and called for strengthening bank regulation. In 2023,$SVB Financial (SIVBQ.US)$,$First Republic Bank (FRCB.US)$After the incident, some Democratic lawmakers proposed to abolish certain parts of the law in response to the turmoil and bank failures in the banking industry.

China International Capital Corporation pointed out that Trump's re-election to the White House may relax financial regulations, which would help reduce the regulatory costs of the American banking industry, increase leverage, and thus enhance profitability and dividend payout ability, but may also increase long-term potential risks in the financial system.

Will Trump take office and Powell step down? The banking industry has been unhappy with the Federal Reserve for a long time.

Although the current Federal Reserve Chairman Powell was nominated and took office during Trump's tenure, Trump is not satisfied with Powell's work, publicly stating on multiple occasions that he wants to "FIRE" Powell, despite the law not allowing him to do so.

Similarly, the American banking industry is also dissatisfied with Powell.

In July 2023, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) released the most comprehensive capital reform plan in years, requiring large banks to increase capital to cope with potential unexpected losses.

The banking industry believes that this plan will harm the economy and put American banks in a weaker position relative to international competitors and non-bank lending institutions. As a result, Wall Street banks have engaged in persistent and intense lobbying activities.

In September this year, Federal Reserve officials stated that US regulatory agencies will comprehensively modify the bank capital reform plan, with the impact on large banks expected to be reduced by half compared to the initial proposal, and small banks may be exempted from a large portion of the measures.

But the matter has not yet been finally settled, but the victory of President Trump.

Investment bank KBW predicts that Trump may make as many as 8 leadership changes in different federal regulatory agencies overseeing the financial services industry, including the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the Securities and Exchange Commission.

The Federal Reserve will undergo significant changes in 2026, when the term of Federal Reserve Chairman Powell will end. More relevant to the banking industry, Michael Barr, the current Vice Chairman responsible for supervising financial matters at the Federal Reserve, will end his term in 2026. Barr is the designer of the new bank capital rules and also one of the major opponents of the banking industry.

"Trump's victory changes the regulatory game, potentially including freer markets, less strict regulation (which will help capital, costs, fees), and lower regulatory risks." Wells Fargo analyst Mike Mayo wrote in a report. He said this marks a 'new era' after 15 years of stricter regulation.

As of the time of writing, Trump has won the presidential election, the Republicans have secured control of the Senate, but the control of the House of Representatives is still undecided. If the Democrats control the House, it may pose obstacles to Trump's agenda, but if a 'red sweep' scenario emerges, there might really be nothing to stop Trump, and Wall Street banks will be ecstatic.

Editor/Rocky