U.S. Bank Stocks and Potential Regulatory Changes

(Reuters) – U.S. bank stocks showed little reaction to a report that President-elect Donald Trump's transition team was planning to severely shrink or eliminate top banking regulators as Wall Street does not expect such a move to receive the required political backing.

Trump advisers and officials from the newly founded Department of Government Efficiency (DOGE) have considered potentially eliminating the Federal Deposit Insurance Corp (FDIC), according to the Wall Street Journal report on Thursday, citing sources familiar with the situation.

Restructuring the major federal regulatory agencies would be a very complex task, stated ING sector strategist Marine Leleux. According to Leleux, "It would require congressional action and despite the Republican party majority in both the Senate and the House, it would require support from the Democrats which remains very unlikely."

Advisers have inquired whether nominees being considered for the FDIC would support its absorption into the Treasury Department, according to the WSJ.

Prominent U.S. banking stocks such as JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), Bank of America, Morgan Stanley (NYSE:MS), and Goldman Sachs saw minimal declines of less than 1%.

Top U.S. banking executives expect Trump's incoming administration to adopt pro-growth policies while potentially rolling back regulations viewed by some as overly burdensome. Analyst Terry McEvoy from Stephens noted, "Regulators will likely replace or ease banking regulation that was implemented under the Biden era. A Republican-led Senate Banking Committee will likely play a role in some of these changes."

The FDIC is crucial for the financial stability of the U.S. economy, with its deposit insurance fund protecting trillions in insured bank deposits. The recent wave of regional bank failures has destabilized the banking industry and incurred tens of billions in losses for the agency's deposit insurance fund.

Mayra Rodriguez Valladares, a bank and capital markets risk consultant at MRV Associates, remarked, "It is truly outrageous if he is serious about eliminating the FDIC. It is the only regulatory entity whose professionals have the expertise and ability to do bank resolutions."