After Donald Trump won the USA election, bank stocks surged significantly as investors bet on Trump fulfilling his promises to lower taxes and relax banking regulations.

There is no doubt that large banks currently have a surplus of capital: according to Bloomberg Intelligence data, the six largest banks in the USA have $124 billion more capital than required, with JPMorgan alone accounting for $54 billion. Currently, the possibility of the Federal Reserve and other regulatory institutions increasing capital requirements is very slim. These regulatory institutions are working to align US banking regulations with global Basel III standards.

However, Bloomberg columnist Paul J. Davies believes that banks hoping for a relaxation of regulations by Trump may be disappointed. The biggest change that could happen soon is the Trump administration leaving regulatory institutions lacking resources to effectively carry out their current work. According to Davies, this is also one of the biggest risks in the banking industry.

US large banks have capital exceeding current regulatory requirements.

The financial industry may not unanimously cheer Trump's victory, but the evaluation of Biden's administration is definitely lukewarm. Biden has appointed strong leaders to the Federal Trade Commission (FTC), Securities and Exchange Commission (SEC), and Consumer Financial Protection Bureau. Davies believes that Lina Khan, Gary Gensler, and Rohit Chopra are likely to be replaced. However, this will take several months, but that doesn't mean all their efforts will go to waste.

Efforts made by Chopra to curb excessive overdraft fees are likely to be reversed, actions that have already cost banks billions of dollars in revenue. SEC led by Gensler has introduced stricter reporting and transparency rules, which are very unpopular in private equity and hedge funds.

FTC led by Khan is considered to be the key culprit in cooling off US mergers and initial public offerings (IPOs), especially those related to technology companies and private equity. One of JPMorgan's top technology bankers, Madhu Namburi, stated on Tuesday that he expects an IPO and merger boom after Trump returns to the White House. However, Bloomberg columnist Chris Hughes pointed out that the political situation is much more complex than bankers hope, especially with JD Vance as Vice President. Vance has criticized large tech companies for exerting too much power and influence in politics. He has also praised the Biden administration's antitrust enforcement.

The issue of bank capital rules is even more tricky. Davies believes that Michael Barr, the vice chairman of the Federal Reserve responsible for bank supervision, cannot be easily ousted like leaders of other institutions. It is reported that when asked if he might be forced to resign after Trump took office, Barr said he plans to serve his full term. His term as vice chairman of the Federal Reserve for supervision will end in July 2026.

Barr tried to do too much in the initial proposal for "Basel III End Game," but there were too many contradictions. In September, he outlined reform measures expected to reduce the average increase in large banks' capital requirements from nearly 20% to below 10%. If the figure is 5%, banks may accept; as it stands, they may continue to resist.

Barr's proposals may be adjusted to maintain international consistency and ensure transparency of operational risks such as fraud or IT failures, while limiting banks' ability to circumvent rules using their own risk models.

However, Davies believes that the key lesson from the collapse of Silicon Valley Bank and other banks last year is not insufficient bank capital or overly lenient regulation, but that regulatory downgrades mean these banks cannot escape bad practices and dangerous business models. This vulnerability was left by Trump's first term; given his commitment to cutting public budgets, it will be one of the biggest threats he faces in his second term.

Finally, Davies warns that banks and investors are cheering the prospect of relaxed regulation, but they should proceed with caution. The lack of regulation will inevitably lead to disasters sooner or later - this is common - and they will suffer the consequences.

Editor/rice