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Bank stocks are the biggest beneficiaries of the post-election Trump rally, and it seems the rally won’t lose steam anytime soon.
“We have undertaken a historic effort to massively reduce job-crushing regulations, creating a deregulation task force inside of every government agency,” Trump said. “We’re imposing a new rule which mandates that for every one new regulation, two old regulations must be eliminated.”
While the speech did not address the particular question of financial regulation, the message of deregulation seemed well received on the street. Tuesday’s speech came in the aftermath ofTrump’s executive order in early February aimed at “cutting a lot out of Dodd-Frank.”
Notably, after signing the executive order, Trump said, “I have so many people, friends of mine, with nice businesses, they can’t borrow money, because the banks just won’t let them borrow because of the rules and regulations and Dodd-Frank.”
In addition to deregulation, which some including Trump argue will allow banks to lend more and thus foster growth, rising interest rates are also seen as a positive for bank stocks. Bloomberg World Interest Rate probability data shows an 80% chance the Fed hikes rates at its March meeting. That’s up from just 50% on Tuesday.
Richard Ramsden, managing director at Goldman Sachs, noted the positive impact of rising rates on bank profits in December. “Banks benefit disproportionately from increases in interest rates, especially from this very low level,” he said. “Their deposit books become a lot more profitable in a rising rate environment.”
Others, who point out to how capital requirements don’t affect bank lending and the unclear relationship between interest rates and bank profits, however, may be less hopeful.
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