Although banks have already won significant concessions on this proposal, which they say will reduce lending and hurt the economy, the latest draft would still increase capital requirements by around 9% for the largest lenders, according to a senior charge of the Federal Reserve.
“The Basel final rule could be completely dead,” said Gene Ludwig, a former top banking regulator who advises financial institutions as chief executive of Ludwig Advisors.
The regulatory change could bring some relief to investors after a year in which some banking stocks have been weighed down by concerns about loan deterioration.
The Fed agreed to soften the proposal in September, when Vice Chairman of Supervision Michael Barr said the regulator would review and reissue the rules later.
Other planned rules requiring banks to hold more debt, as well as changes to liquidity regulations, may also be in question.
“The outlook for the banking sector is brighter under Trump,” said Dan Coatsworth, investment analyst at AJ Bell. “Banks would have fewer restrictions and could use more cash for loans or share buybacks.”
The US central bank declined to comment.
The KBW Banks Index .BKX, which tracks large-cap banks, fell 1.5% after closing nearly 11% higher on Wednesday, while an index tracking regional lenders fell 1.5% a day after an increase of 13.5%.
Regulator rotation
As Trump installs new regulators at key agencies, his choices could have an immediate and seismic effect on a banking industry more accustomed to a slower pace of change, according to a financial technology executive who declined to be identified discussing the personnel changes.
“This is like an earthquake for bank M&A and bank regulatory policy,” said Ed Mills, an analyst at Raymond James, who expects bank deals to be announced within weeks.
