Global Banking under Trump 2.0: The U.S. "Jumping Ahead" and Europe "Falling Behind"?

Under Trump 2.0, a new differentiation is emerging in the global banking industry: the U.S. banking sector is in the "beginning of a launch mode," with "animal spirits reviving," while European banks are worried about being left behind by the times.

On Tuesday, at the World Economic Forum in Davos, JPMorgan Chase's head of asset and wealth management, Mary Erdoes, stated that the regulatory approach of the Trump administration could boost the U.S. economy and alleviate the burdens placed on the banking sector by the Biden administration:

“The Trump team is creating a very business-friendly environment, hoping this will keep us ahead of other governments globally.”

The potential growth of U.S. banks may further widen the growing gap between them and European banks. Analysts believe that if European regulators continue to strictly enforce rules such as Basel III, European banks may be at a competitive disadvantage.

"King of Understanding" Returns, U.S. Bank Advantages May Further Expand

A new differentiation is emerging in the global banking industry: some companies benefit from Trump's deregulation, while others worry about being left behind by the times.

U.S. banks have long outperformed their European counterparts, and this gap may further widen in the future. Mary Erdoes expects that the more relaxed regulatory environment in the U.S. could promote more mergers and acquisitions and company listings. She stated:

“Due to heavy regulatory burdens, many companies are unwilling or unable to go public, and we hope this situation can change.”

The Biden administration has enacted eight times as many significant new regulations as the Trump administration did, leading to a massive amount of paperwork that hinders healthy economic development. She looks forward to a new regulatory environment that can change this situation.

JPMorgan Chase has set up a "war room" specifically to analyze and assess Trump's executive orders. Erdoes also praised Trump's decision to require federal employees to stop working remotely.

Banking lobby groups welcomed Trump's executive orders to roll back Biden-era regulations and urged him to take further action. Greg Baer, CEO of the Bank Policy Institute, which represents U.S. mid-sized and large banks, stated:

“The new administration should expand the scope of review beyond pending regulations, including policy statements, interpretive rules, and agency actions that have been deemed binding rules without going through the required notice and comment process.”

U.S. Regulatory "Deregulation," European Banking Sector Faces Challenges

In contrast, European banking executives are concerned about the Trump administration's tendency toward deregulation.

Andrea Orcel, CEO of UniCredit SpA, stated that she does not consider other banks from Europe to be competitors, “the real competitors we are worried about are U.S. banks”:

“The U.S. will far outpace Europe in terms of regulation, and considering that U.S. banks also have operations in Europe, this will put us at a competitive disadvantage.” One important reason is the implementation of Basel III. This is a set of global banking capital and liquidity regulatory standards developed by the Basel Committee on Banking Supervision after the 2008 global financial crisis, aimed at strengthening the regulation, supervision, and risk management of the banking industry.

The rule was originally scheduled to take effect this year, but its prospects have become uncertain as various jurisdictions have postponed the implementation dates. The global banking industry generally believes that higher capital requirements will limit their ability to provide credit to businesses and households. However, the stricter standards primarily affect the funds that banks reserve for shareholder dividends and stock buybacks.

In the United States, plans for adopting the next phase of Basel III regulatory requirements have not yet been announced. Previously, related proposals put forward by U.S. regulators in 2023 faced strong opposition from the banking industry. Although regulators announced a softened proposal at the end of last year, they did not specify when banks would need to comply with the new rules.

Basel III: U.S. Policy Becomes Key, UK and EU Consider Adjustments

This attitude from the U.S. has sparked speculation among many countries worldwide, which are watching to see when or if the U.S. will advance the proposal. The Bank of England has announced a one-year delay in the adoption of the Basel Agreement, explicitly stating that this move is due to "the current uncertainty regarding the implementation timeline of U.S. standards."

The Financial Times quoted a senior banking executive on the 21st, stating that the UK may lean towards the U.S. regulatory framework. "The UK government will be at the forefront of loosening regulations," the executive said, "They have delayed the implementation of Basel III to see if the U.S. will implement it."

The European Union has also taken similar actions, delaying the implementation of certain provisions of the Basel Agreement, although some rules have already begun to take effect. However, the EU has also made slow progress on other measures aimed at stimulating the financial industry: the much-anticipated financial single market is still expected to take years to establish, and cross-border merger barriers mean that the European financial industry remains fragmented, with profitability far below that of its U.S. counterparts.

Bettina Orlop, CEO of Deutsche Bank, stated that in light of the shift in U.S. regulatory policy, Brussels is beginning to be willing to simplify some EU banking rules:

“We advocate rethinking and reconsidering the further implementation of Basel III; the EU needs to consider adjusting its plans based on the practices of the U.S. and the UK.”

Risk Warning and Disclaimer

Markets are risky, and investments should be made with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk