Large banks could unlock some $2.6T as a result of U.S. bank deregulation that could drive lending, M&A, and tech investment, Jefferies said in a note to clients on Friday.
The capital release would come from a 15% reduction in common equity tier 1 requirements, equaling 16% of total U.S. banking assets, or half the size of JPMorgan Chase’s (JPM) balance sheet, a group of Jefferies strategists and analysts led by Aniket Shah and Daniel Fannon wrote.
“The reforms are already visible, with U.S. banks increasing risk-weighted assets by 10% annualized in 25Q3 and major banks such as JPMorgan (JPM), Goldman Sachs (GS), and Wells Fargo (WFC) announcing large-scale lending, M&A, and higher profitability targets,” they said. Most of the changes will come in 2026, as banks reduce management buffers and redeploy capital.
They expect the deregulation benefits to be concentrated among large global systemically important banks, or G-SIBs. “The capital release for G-SIBs is expected to drive a 6% uplift in ROTCE for U.S. banks and a 3% uplift for UK banks,” they said. “This concentration of benefits will reinforce the competitive position of the largest banks in global markets.”
They note that:
- JPMorgan (JPM) has announced a $1.5T lending target for security and resilience, including $0.5T in new loans and $10B in equity investments
- Goldman Sachs (GS) has used excess capital for an acquisition and continues to strengthen its client-facing franchise
- Wells Fargo (WFC) and Bank of America (BAC) have raised profitability targets and reduced management buffers.
The U.K. is expected to follow the U.S. with a smaller and slower deregulatory push, while EU and Swiss banks “face constrained profitability and limited upside due to higher capital requirements.”
Other relevant tickers: Citigroup (C), Morgan Stanley (MS), HSBC (HSBC), Barclays (BCS), Lloyds Banking Group (LYG), Deutsche Bank (DB), UBS Group (UBS), Banco Santander (SAN).
The KBW Nasdaq Bank Index (BKX) rose 1.6% in Friday midday trading. Bank of America (BAC) stock gained 1.0%, Citi (C) increased 0.8%, and Wells Fargo advanced 0.8%. JPMorgan Chase (JPM) slipped 0.4%, and Goldman Sachs (GS) was roughly flat.