The Economist: Will Donald Trump unleash Wall Street?

According to Jamie Dimon, chief executive of JPMorgan Chase and king of Wall Street, bankers were elated upon Donald Trump’s election victory. Many chafed under Joe Biden’s presidency, as mergers and bank fees faced additional scrutiny, and new capital-market rules came thick and fast. Now, with the inauguration of Mr Trump imminent, American financiers will discover just how much cause they have for celebration.

The industry will certainly experience an abrupt change in how it is overseen. America’s regulatory agencies will take a permissive approach in banking and beyond, with new priorities when enforcing securities laws. Crypto is about to go truly mainstream. And looser rules could enable the consolidation of America’s banking system, home to a vast number of small and mid-sized lenders. The only danger, from Wall Street’s perspective, is that the Trump team’s MAGA instincts and chaotic approach prevent a deregulatory boom.

One appointment is emblematic of the coming shift. Gary Gensler, outgoing head of the Securities and Exchange Commission, annoyed Wall Street by demanding disclosures on pay and meddling with private-market funds. His replacement, Paul Atkins, served as an SEC commissioner under President George W. Bush, and has been a critic of the agency’s approach to prosecuting suspected wrongdoers, which he believes favours quantity over quality. Instead, Mr Atkins prefers an “open jacket” method, in which the SEC presents defendants with its evidence up front. This, he believes, would speed up the process by pressing defendants to decide whether to settle cases or go to court.

So far, so typical for a Republican administration. But Mr Atkins comes with a twist. He is co-chair of the Token Alliance, a pro-crypto advocacy group — and he will be joined by fellow digital-asset enthusiasts. French Hill, the incoming head of the House Financial Services Committee, says that he will pursue legislation confirming which digital assets are commodities and which are securities in the first 100 days of the new Congress. The Biden administration has also forced banks to report the crypto they hold for clients on their balance-sheets, unlike the practice with other assets. This rule is likely to be axed.

Elsewhere, change will arrive faster still. Mr Trump is expected to revive executive orders from his first term and rescind ones issued by Mr Biden. Bankers hope the bonfire will include orders that increased scrutiny of mergers, slowing tie-ups among America’s many banks. In each of the past two years, fewer than 150 mergers and acquisitions have taken place, in contrast to at least 250 a year in 2015-19. Although high interest rates have played a part, the time taken to complete a merger has climbed, reflecting closer scrutiny.

Mr Trump’s appointees will also oversee the implementation of international banking standards, known as the “Basel III Endgame”. A proposal from the Biden administration and Federal Reserve in 2023 would have lifted capital requirements on forms of mortgage lending, and meant an average 16 per cent rise in capital at banks with more than $US100 billion ($160b) in assets. Lenders argued the proposal went well beyond what the international standards required. A version of the new rule that does not, in aggregate, require any capital-raising by big banks now looks more likely.

It is not just Wall Street that is hopeful about the new administration. Other parts of American finance are similarly upbeat, in particular the private-equity industry. Shortly before the end of Mr Trump’s first term, the labour department issued guidance stating that managers of defined-contribution pension plans could include some private-equity assets in their portfolios without violating fiduciary obligations—only for the advice to then be scrapped. Marc Rowan, chief executive and co-founder of Apollo Global Management, a private-equity giant with $US733b in assets under management, has said that getting access to such savings is the firm’s “single biggest opportunity”.

Dog eat dog

The consolidation of America’s alphabet soup of financial regulators is another long-held Republican aspiration. Members of Mr Trump’s transition team have reportedly asked candidates for top jobs whether some of America’s financial agencies could be cut. Elon Musk, a billionaire technology executive who will run Mr Trump’s Department of Government Efficiency, has said he would like to “delete” the Consumer Financial Protection Bureau, an agency created by legislation passed after the financial crisis. Merging or abolishing agencies would require assent from both houses of Congress, however. With a razor-thin margin in the House of Representatives, doing so may prove difficult.

That is especially true given probable opposition from some quarters of the Trumpian alliance. In 2023 J. D. Vance, the vice-president-elect, joined Elizabeth Warren, a trust-busting Democratic senator, to criticise financial regulators for allowing JPMorgan Chase to acquire the assets of First Republic Bank, which collapsed that year, arguing the deal would increase corporate concentration. Even if Mr Vance does not pick up the baton in government, other MAGA types almost certainly will. The administration’s response to a proposed acquisition of Discover by Capital One, two banks specialising in credit cards, will hint at just how laissez-faire it will really be, suggests Christopher Wolfe of Fitch, a credit-rating agency.

The coming wave of deregulation has plenty going for it. Mr Biden’s efforts to raise capital levels would have been an unnecessary squeeze on the business of big banks. Heightened scrutiny of mergers has slowed consolidation in a fragmented industry. Even some regulation of digital assets has been needlessly aggressive. Deregulators who hope for a big bang may find themselves disappointed, given internal constraints and haphazard policymaking. Yet Wall Streeters who have kept their ambitions in check will find much to commend in the Trump administration.