A Donald Trump administration is poised to pull back on regulation in the U.S. banking industry, which is likely to create more favourable conditions for consolidation in the sector, according to one expert.
Gerard Cassidy, managing director and head of U.S. bank equity strategy at RBC Capital Markets, told BNN Bloomberg that if Trump’s first presidency is any indication, federal regulators will be more lenient with America’s big banks than the current administration.
“Under the (Joe) Biden administration, regulation has been dialled up, it’s more onerous, particularly at the U.S. Consumer Financial Protection Bureau (CFPB),” he said in a Thursday interview.
“Under the first Trump administration, the regulators were much more supportive of the banks in terms of consolidation, but also in the CFPB, that agency was really not very active, or you could say it was de-fanged, so we expect that to happen again.”
Cassidy said one of the main reasons this change matters to U.S. banks is because the CFPB has been cracking down on the fees that lenders are charging their clients for late credit card payments – a significant source of revenue for big banks.
“The banks are fighting that in the U.S. court system, so we think that may reverse back in favour of the banks to maintain the fees that they’ve been charging,” he said.
“When you compare it to (Trump’s) first administration, you had people in there that were more supportive of the banking industry and weren’t as confrontational as the current administration’s regulators, and we think that’s going to be a benefit for the banks.”
When asked if there was reason to be concerned about regulations being dialled back too much under a Trump administration, Cassidy said “the short answer is no,” adding that the U.S. banking system is as well capitalized as it’s ever been, with strong liquidity levels across the industry.
“The banking system is very healthy, very safe, and very strong. Now, we did have those failures last March, (but) the system handled them quite effectively,” he said.
Consolidation theme
Cassidy said consolidation in the U.S. banking sector has been going on for more than 40 years, but the trend is not linear, as the macroeconomic and regulatory environment largely dictates whether deals are made.
“It goes in waves; peaks and troughs,” he said.
“We’re in a trough right now, and we think that one of the reasons has been that the regulatory environment has been uncertain. It’s not clear if the regulators are all supportive of consolidation,” he said, adding that elevated interest rates have also made it “tougher to get deals done.”
Cassidy noted that America’s banking behemoths like JPMorgan Chase & Co. and Bank of America Corp. are currently prohibited from buying any depositories since their deposit market share already exceeds 10 per cent.
However, there are a number of large regional banks across the U.S. that may be looking to grow through mergers and acquisitions in the months to come as dealmaking conditions improve, he said.