What Trump’s presidency means for banking
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Hey, everyone. We're doing something a little different for our show this week. Earlier this month, I traveled to London to attend the Financial Times' Global Banking Summit. While I was there, I moderated a panel with some of my colleagues, and we talked about what the banking sector is going to look like over the next four years under a second Trump administration. And now we're going to play that conversation for you right here. So enjoy.

Good afternoon and welcome. My name is Mikela Tendera. I'm the host of the FT's podcast, Behind the Money. This afternoon, we're going to be talking about what Donald Trump's election in the U.S. means for, well, you, the banking sector.

So I will just quickly introduce my panelists here. So we have Michael Climes from The Banker. We also have Brooke Masters, the FT's U.S. financial editor, and Hortensa Aliai, the FT's banking editor. So thank you guys for being here. So we have all now had, it's been almost a month, to digest the news of America's election results.

And what the Trump administration is actually going to be looking like is starting to come together. We've seen that Gary Gensler is going to be leaving the Securities and Exchange Commission. Scott Besant's been tapped to lead the U.S. Treasury. So, Brooke, I want to start with you, as you are typically based in New York. Even just glancing at share prices, you know, we know that U.S. banks welcomed Trump's election. So why are U.S. banks so happy about this?

I think you have to see this as a deregulatory move. Republicans, by definition, are deregulatory. And the Biden administration and the regulators they put in place at the SEC and at the Fed in particular have been very hands-on, to put it mildly. I think many in the industry would call it heavy-handed.

And so the idea that Gensler is going is just incredibly good news from their point of view. The other thing is it was particularly the regional bank index that shot up. It shot up 10 percent compared to 3 percent for the S&P 500 overall. And the reason that is, is that the Biden administration has also been very, very skeptical of bank mergers.

And so lots of little listed banks that are struggling to meet their costs have had trouble finding partners and agreeing on prices. And so I think everyone thinks it's like open season on banking. Yeah, and that's, I mean, the U.S. already has so many thousands of banks compared to other countries. Exactly.

So on dealmaking, as you said, there's generally an expectation that dealmaking is going to increase. But more specifically, what do you see that looking like? And what are your sources telling you? Is it just going to be domestic deals? Do you see foreign banks coming into the U.S. trying to set up shop? What do you see that looking like? I mean, it will be a very short answer. I would love to see the day when a European bank went to the U.S. and bought another bank. But I don't think that's

likely anytime soon. I think what you might see is maybe a few opportunistic moves by the likes of UBS, who we know really wants to expand its wealth management offering in the US. So there might be those kinds of smaller acquisitions. But, you know, we know they're notoriously difficult to integrate, especially in an uncertain regulatory environment. And of course, Trump

thrives on uncertainty or on being unpredictable. So it depends on weighing that against staying in your home market and developing that. But I don't see a future where a UK or European lender will go and buy a US one.

I think the exception might be Santander, which is already committed to the U.S. and has quite a large business that they're already trying to expand through digital banking. They're an interesting model in that they take U.S. deposits and they use them to fund subprime car loans. So they have a very clear, we want the deposits, we know what to do with them, we can make a lot of money. And in a less regulated environment, they might find it interesting to buy some community banks that have deposits because they have something to do with them.

I think the other thing that's interesting is TD, the big Canadian bank, recently, of course, got penalized and beaten up by the Biden administration for allegedly funding all of the fentanyl basically running up and down the East Coast.

And they have an asset cap on now, but with a Trump administration, how long that cap lasts, who knows? They might want to come back and try again because they were very keen to expand. They're already chunky and they would like to do more. Otherwise, within the U.S., the bigger banks, the sort of U.S. banks, the PNC truest banks,

They won't be buying stuff unless the Trump administration decides to change the rules. Because if you may remember, they loosened the rules for banks of that hundred billion size, which of course led us to SVP and all that glory. Yes. Now, beyond talking about dealmaking and thinking more about regulation and deregulation broadly, what are the main areas that you're looking at to see changes in the regulation space under the Trump administration? Yeah.

Climate, obviously, you know, the SEC's climate rule was already on hold and I think it's gone now.

tougher rules on cryptocurrency and on custody and on outsourcing. All of those rules were moving their way through the Gary Gensler process, and I think now they disappear. So what that means is the things that banks have been complaining about in terms of additional burden will go away. And of course, Basel III Endgame, which was in the US, the way they had proposed it, was going to significantly increase capital for the very biggest banks. So this is the giant's

And they had already backed down to a certain extent. But there is a proposal on the table. I think that proposal is dead. And it is not clear to me whether there will be a new proposal or the US will just bail. I think the Inflation Reduction Act is a really interesting one to look at because I was speaking to the head of EMEA Investment Banking at Mizzou, Slava Slavinsky. And he said there's a big question about whether a lot of projects or clients which may have funding through the Inflation Reduction Act, if that will still go ahead or not.

And if that funding isn't going to come through the IRA, they're going to have to find funding from elsewhere potentially. So that's a conversation that you might have to have with clients or whatever and is one to look out for, for sure. Yeah. Which of these would you say would have the biggest global impact on banks outside the US as far as deregulation goes?

I mean, I think Basel, yeah, Basel III was probably going to have the biggest. But it'll be interesting to see what they do because banks hate zombie regulations. And I think that's going to be the debate that they have. Because, you know, you change the administration another four years and then that administration maybe might be a Democrat's and they will bring it back. And then it creates this sort of like regulatory arbitrage situation.

situation between the European banks and the US banks. And then there's a crucial decision to make here. It's do we perhaps, you know, follow the US example or do we carve our own path? And that's going to be part of the broader theme that we will have to look at is does the US and Trump make Europe more aligned and the UK more aligned to Europe? I think that'll be interesting to see.

Yeah, related to that, I mean, obviously one of the big topics of late has been tariffs and their impact. How do you see a potential trade war impacting banking?

Banking is a cyclical industry. If the trade war leads to inflation and then some kind of economic problems, I mean, the last time we had a massive trade war, we ended up with the Great Depression, that is clearly going to affect banks. And all kinds of loans to companies that expected to be able to sell across borders and now can't will be problematic. I mean, it's hard to imagine a trade war being good for banking.

I think he's oversold on that one and I don't think it's going to happen the way that he thinks it is because he's got two inflationary issues coming up. The obvious one is that he wants to do mass deportations, which reduces the workforce, etc, etc. The second part is that it's not like trade is going to stop. We all think of trade wars as if China and US can't trade, then everything holds. There will be new routes carved out and of course that will be more costly, but there will be

in fact, I think opportunities for banks. And you will just have, one, you'll have those countries make more homegrown goods because that's the sort of easiest way to solve that. But two, you'll have them find different trade routes. And so maybe you'll see more trading between China and Europe. And, you know, I think that the sort of negative connotations around it will be more

towards the US. I think as soon as it starts to create inflationary pressure on Trump, knowing that is the likelihood of why he got elected, then I think he'll step down on that front. The only thing I'd say on tariffs is recently I was speaking to the CEO of Citizens, Bruce Van Son, and when I asked him,

what do you like about Trump's agenda? He liked pretty much everything. But the only thing that was giving him a bit of pause was the tariffs. And we still don't know what that exactly means. So that was just the only question mark, I think, that he had. Yeah. Yeah. I mean, that kind of brings me to my next

question, which is talking a bit more about Scott Besson as Trump's treasury pick. You know, he's been a big Trump donor, has background in hedge funds, but he has not been quite as enthusiastic as Trump about tariffs. I think he told the FT actually recently that they were, quote, maximalist positions that would probably be watered down in talks with trading partners. So

Where do you see him and his role in the Trump administration having the most impact on the banking sector? I think it's sometimes hard to predict because the Treasury Secretary not only obviously has a big impact on tariffs, and it is true, if they had chosen Lighthizer or somebody like that, which is who like Elon Musk was lobbying for, that would have clearly been a signal that tariffs were on the way. Besson does suggest that Trump has at least some second thoughts. But

But the Treasury Secretary also does things like chair the Financial Stability Oversight Council, which could have big impact on how the systemically risky activities such as private credit are regulated. So I think what's interesting about him is he's a market participant who clearly understands the market and has been in it. And for the Trump administration, that's unusual at this point to have a practitioner actually running a department that does that. So I think that's probably a good thing.

So let's talk a bit more about risk. In a Trump administration, what would you say are the biggest risks to the banking sector? You know, people are excited about deal-making, that sort of thing, but what's the other side of that coin that you should be thinking about? Well, I think everyone's very enthusiastic at the minute. I mean, I haven't spoken to anyone who has any bearish feelings. I guess simply the greatest risk is that simply we don't know what he will do

He's predictably unpredictable. And I think that the tariff, that seems to be the thing that is most away from economic orthodoxy. Everyone says that the free flow of goods is good.

And, you know, trade is not a zero-sum game, but this administration, as the economic thinking on that seems to have changed somewhat. And I think maybe what would be interesting is just, again, this tension between you have Scott Besson, who's maybe a more kind of orthodox, economic, safe pair of hands, sort of Wall Street insider, shall we say, you know, versus the more kind of unorthodox thinking, which is coming from some other quarters of the administration. Yeah.

I think probably the biggest risk is that we have a resurfacing of inflation and that obviously affects banks and the broader economy but

Look, banks have had a really good few years, right? Interest rates have been high. Even now that they're going down, a lot of the banks, at least in Europe, use something wonderful called structural hedging where they lock in the benefit of those interest rates for the next two, three years. And so barring any catastrophic event, they should see a sort of steady profit stream over the next few years. So I don't think that there are that many headwinds, so to speak, now. But if you look back to 2016 to 2020...

there were various things that we couldn't have predicted. And, you know, arguably, for example, the SVB crisis was born in those years and then, you know, happened slightly later. So it's difficult to see where those pockets of difficulty will be.

Got a couple for you also. Yeah, I was going to say, I think this is my thing. Well, first of all, remember that Trump on hard to know if it was just a throwaway line, but he said he wanted to cap interest rates on credit cards, which would basically undermine the business model of like half of the U.S. banks. That would be kind of a problem. It probably won't do it, but.

He's Trump. Second thing is it's worth remembering that what ended the wonderful string of everything were COVID and then the Ukraine war, neither of which are things have anything to do with banking, but they really screwed up everybody's economies. And so it's worth saying that having a completely impossible to predict president means that the tail risk of something that you just can't even imagine showing up is incredibly high.

And you talk about everybody's very enthusiastic about Trump. Before the election, when they weren't dealing with the reality of it and therefore also sucking up, let's be honest, lots of people would say, like, Trump on the surface, like, 75% is much better for my pocketbook, much better for my business. 25%, unbelievably awful tail risk. I'm giving money to Biden. And so I think that's the thing. It's not any specific policy so much. It's just that you have no idea. Yeah.

And also the deportations and immigration risk is extremely important for the health of the U.S. economy. And given that the U.S. economy has basically been driving the health of the world since China has flagged a bit, I think that's the other thing is if they really are serious about shrinking the labor force in the U.S., that's going to be painful. Again, we don't know that they're serious, but they might be. Yeah. Do you think there are any lessons that can be learned from the

2016 to 2020 era Trump that were either beneficial or not beneficial to banks that they're using now to prepare for the next four years? I mean, America has reelected someone who is known for all of these challenges that he presents to the economy, to, I mean, the immigration issue, I think, has been immensely underplayed, by the way, because if you have mass deportations, you're

The costs of goods is going to be absolutely ridiculous. And that's something that people... Services. Absolutely. And that's something that people seem to forget is that, well, you know, your low-income workers tend to be immigrants. But...

I think he's malleable. I think, you know, it's been shown that if he's surrounded by people like Scott who understand the environment that they operate in well, he will come back. And that's the kind of interesting thing about him is that he'll go, you know, full speed ahead with the policy. It will snap him in the face and he'll be like sort of do a U-turn on it.

I mean, I think if you think also about what did he do in 2016 and 2020, he passed the giant tax cuts, which actually turned out to work out pretty well. And they are all up for renewal. So presumably they will pass again and possibly there will be more tax cuts or slightly different tax cuts that could have quite positive effects for some businesses and certainly for banks.

They did the deregulation that led to SVB and Signature. The thing about that deregulation, to be fair to the Trump people, was, you know, of all the banks they deregulated, they deregulated hundreds of them or maybe even thousands because it's a middle group. You know, three of them went bad. Yeah, so it's, you know...

If they had done better supervision of those three, I don't know that the deregulation per se caused it. You know, even Michael Barr, who wanted to blame it all on Trump, had to say it was like a change in attitude in supervision. Because they did. They sent them little notes like, you're breaking the rules. Please do something. I mean, like...

You know, like, see me after class? Excuse me, guys, you can't buy anymore or whatever. Anyway, so it is not clear to me. Again, I mean, it was a lovely economic time for the U.S. most of the time there. There was a bit of a blip in 2018, I think. But otherwise, I mean, it was a very lovely economic time for the U.S. Yeah, yeah. I want to open the floor up to questions. Does anyone have a question on the floor? Sure.

Oh, this one over here. Ah, table five. Thank you. You talked about immigration possibly having a negative effect, and we do know food prices would go up considerably if you do deport all of those people that he's talking about.

What about the social and political implications of a divided country? Do you see that having an impact on the economy ultimately or not at all? I think history has told us no, to be honest. I mean, I lived in New York. I remember speaking with the CEO of a bank there before I moved back to London, and their view was my bank's going to do

well, no matter what. So I don't think those issues are as big of a concern to people as I think they once used to be. Although I do, one thing I do think is, I mean, this is not an economic point, but obviously I think there will at some point have to be a coming together of like the American psyche and what America represents. And we'll see where America stands in four years, whether it's a stronger country because it's been under Trump and it's got these new policies or whether it's a weaker country.

I think that that's definitely true. And I mean, the other thing is, it's not at all clear to me exactly how Trump will govern this time and how different it will be from last time and therefore how divisive it will be. He's bringing in some of the Project 2025 people who will be doing very significant, if they push through what they want, they will be doing significant changes to the way the U.S. government is run, which will lead to further division because the blue states are

In a federal system, and this is patterned, every time you get a deregulatory president, the blue states regulate some more. And so that will exacerbate divides and making it harder to do business across state lines. And so I think that is one place where we really might see it. For example, if the Supreme Court does somehow empower states to decide what abortion medicines are available, if you're a pharma company, it may get that much harder to decide that.

how to run a business. And you could indeed have different standards in different places that asset managers who are having to deal with anti-ESG and pro-ESG rules are already living in this world.

I think banks may find that happening to them as well. Yeah, that actually, I had a follow-up question on that related to ESG. Yeah, that's become an increasingly politicized area of finance. A lot of that has happened under the Biden administration, though. Do you see that kind of going further under Trump, or was that kind of something that was more of a reactionary thing, something to kind of rail against while the Democrats were in power?

I think Brooke is the expert on this. I'm going to let Brooke answer, but I really do think that ESG has kind of gone the way of woke at the moment, which is that, if I'm being perfectly honest, I think a lot of companies are paying lip service to it. I don't know how much it was ever going to be a permanent part of their operations.

I think the other thing to remember is that ESG actually really got going in the Trump administration the first time. Because it became this issue like we, the better than you are CEOs who are woke, they were probably not using woke yet, but we know better. Do you remember stewardship and good corporate citizenship and stakeholder capitalism? That was the Trump administration. It's only when the Biden administration started turning into rules that everyone was like, oh, wait, we actually have to do this stuff.

So I would tend to be fairly cynical. I do think that the question of addressing climate change will remain complicated. And there is good money to be made in reliable power sources that don't destroy the world climate. And so I think people will continue to invest in that. They probably won't be doing as much disclosing and they probably will be calling it something, they'll be calling it money making as opposed to saving the world.

All right. Well, I have one more question for you guys that is every year the FT asks its journalists for a prediction for the following year. So I want to do something kind of like that here. So where do you think the banking sector will be four years from now if we're sitting on this couch and taking stock four years from now?

I think you will have a much bigger divide between the haves and have-nots. I think that's going to become more apparent. Like the banks like BBS, which is getting bigger, Unicredit perhaps,

BNP Paribas, I think these banks have kind of emerged as some of the strongest contenders in the European economy and have done really well. And maybe we'll see much more of a sort of disparity between certain banks. I think that we forget how sort of exceptional the US is, both in terms of the size of its capital market. It really, you know, it's an extraordinary beast.

And I think the U.S. investment banks, you know, the top six, JP Morgan, Wells Fargo, Morgan Stanley, Citi, those entities will be still very, very strong and very dominant.

I think the biggest U.S. banks will get bigger. And don't forget Bank of America, which is actually bigger by assets. And I think we will see consolidation in the smaller part of the U.S. banking sector. And I think we might see the emergence of another big American bank. I mean, the sort of next level down, the truest PNC, they have ambitions. And if the U.S. economy continues to power that far and that fast, it's such a great base to come off of. I could see one of them getting dreams.

Okay, so bottom line, bigger banks four years from now. Yeah, and fewer smaller banks. Or maybe private credit has started just doing everything. That's true. That's a whole other discussion for us. Okay, well, I want to give a big thanks to you guys. Hortensa Aliai, FT's Banking Editor, Brook Masters, FT's U.S. Financial Editor, and Michael Climes, the Banker's Investment Banking and Capital Markets Editor. It was a great discussion. Thank you guys so much.

Behind the Money is hosted by me, Michaela Tendera. Safiya Ahmed is our producer. Sound design and mixing by Joseph Salcedo and Breen Turner. Topher Forges is our executive producer. Cheryl Brumley is the global head of audio. Original music is by Hannes Brown. Thanks for listening. See you next week.

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