Banking on Change: How a Second Trump Administration Could Impact the Banking Industry

Elections matter, and in the U.S., we are only starting to understand what the latest presidential election means for the banking industry. Unlike in Trump’s first campaign, financial regulation was not a prominent feature this time, and how the second Trump administration will approach the many issues impacting the sector remains to be seen. However, one thing is for sure: change is coming. Based on Trump’s first term and statements made during his second campaign, it is safe to assume that a de-regulatory approach will be a crucial underpinning. This report highlights three key areas where the new Trump administration’s approach could significantly impact the banking industry.

Basel III Endgame

Initially proposed in 2023, the Basel III endgame is a regulatory framework designed to revise risk-based capital requirements for U.S. banks holding over $100 billion in assets. The original proposal aimed to increase aggregate capital requirements by 16%; however, on a relative basis, the largest banks would see a much greater impact (Exhibit 1). The proposal triggered intense opposition, with critics raising concerns about its potential to limit credit availability, disrupt capital markets, and slow economic growth, among many others¹. In September 2024, U.S. regulators introduced a softer version of the rules, reducing the proposed capital increases by more than 50% for each banking category. We believe this adjustment reflected an effort to address industry and political criticisms while still achieving more robust financial safeguards. However, with the new Trump administration in power, significant changes to the re-proposal are expected, potentially diverging sharply from the September revision and the original 2023 framework. We believe the Trump administration will cut back on the scope of these rules and may be inclined to rewrite them completely. This means lower capital requirements for the banking sector, which should improve credit availability, reduce the cost of credit, and boost bank profitability. 

Exhibit 1: Aggregate Capital Increases for U.S. Banks Under Basel III Endgame

Private Credit

Private credit, defined by the Federal Reserve as lending by non-bank financial institutions, has experienced remarkable growth over recent years. A key driver of this growth has been regulatory developments enacted in response to the GFC, changing how the credit market functions. As banks were forced to derisk their balance sheets and reduce their role in financing riskier markets, such as leveraged lending, private credit stepped in to provide borrowers with stable funding and efficient lending processes². Federal Reserve data shows that since the GFC, bank lending has fallen from 40% of all corporate borrowing in 2006 to 36% in 2024, while non-bank lending has grown significantly (Exhibit 2)³. Implementing the Basel III endgame was widely expected to encourage more borrowing from the private credit markets to the detriment of bank market share. However, with regulations in flux under the new Trump administration, the opportunities may prove less robust for private credit, leaving banks in a more favorable position to provide lending.

Exhibit 2: Corporate Borrowing from Non-Banks Surpasses Bank Borrowing
Borrowing from banks and non-banks, 2000 to 2023 (US$ billions)

Bank Consolidation

Bank mergers and acquisitions (M&A) activity slowed significantly under the Biden Administration (exhibit 3), influenced by economic and regulatory factors. High interest rates, fears of a looming recession, and weakened equity valuations created a less favorable economic environment for consolidation. The administration’s emphasis on anti-trust issues placed additional scrutiny on M&A deals⁴. However, the aftermath of three regional bank failures in 2023 seemed to intensify this regulatory scrutiny, with greater consideration regarding financial stability⁵. This heightened stringency provided another layer of complexity for banks considering mergers, contributing to the subdued M&A activity during this period. The incoming administration’s approach to bank mergers appears poised for greater receptivity than in prior years, suggesting a more lenient regulatory stance. However, the populist rhetoric championed during the Trump-Vance campaign⁶ injects potential complexities, particularly regarding consolidating large institutions or cross-border banking deals. This dual dynamic—business-friendly policies tempered by populist skepticism—may result in a selective and nuanced regulatory environment for mergers and acquisitions that likely favors smaller institutions within the banking sector.

Exhibit 3: Completed US Bank M&A Deals Since George W. Bush Administration

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