‘Let the banks be banks’—Trump’s pick for Treasury has $23 trillion sector champing at the bit

As Treasury Secretary, Bessent would be expected to support policies Trump says will make America more competitive, stop “unfair” trade imbalances, and create an economy that prioritizes growth above all else.

While some researchers are concerned the reduction in regulations put in place after the Great Recession could destabilize the market, Wells Fargo Securities’ managing director and head of U.S. large-cap bank research, Mike Mayo, a says fewer regulations will make banking services cheaper, freeing up money to let them do what they do best.

“Don’t sacrifice one iota of resilience,” says Mayo. “But let the process improve the efficiencies. Less bureaucracy less complexity, less red tape. Let the banks be banks.” Wells Fargo’s stock has increased 20% since the election.

The challenge

Bessent rose to fame in the 1990s, when he worked his way up to executive director of progressive investor George Soros’ hedge fund. His politics started to change sometime after 2015 when he founded his own hedge fund, Key Square Capital management, which has struggled of late, reportedly dropping 90% from its peak.

This summer he emerged as more of a political influencer than an investor when he pitched a conservative treasury plan—what he calls the 3-3-3—at the Manhattan Institute. The plan would cut the budget deficit to 3% of gross domestic product by 2028, boost GDP growth to 3% through deregulation; and increase U.S. energy production to the equivalent of an additional 3 million barrels of oil a day.

The transition to aspiring bank regulator (and more) continued after Trump was elected. Five days later he published an op-ed in the Wall Street Journal arguing that “overhauling the regulatory and supervisory environment will encourage more lending and reinvigorate banks.” While Lindsey Johnson, president and CEO of the Consumer Bankers Association says her members are “optimistic” about Bessent’s nomination, the 3-3-3 plan comes with its own obstacles.

“The challenge is going to be trying to bring some of these things to the table and doing that through the tax agenda that they have,” says Johnson, whose members include Bank of America, JPMorgan and Capital One. Among Trump’s many tax ideas is replacing income taxes with tariffs. “Walking that line is going to be difficult, but I’m confident that they are thinking through these issues and hopefully going to land it in the right place.”

The markets aren’t waiting to see how this all plays out. In the hours after Bessent’s nomination the yield on benchmark U.S. 10-year notes fell 14.5 basis points to 4.3%, according to a Reuters report, and in a sign of confidence in the economy, have maintained that lower position into the new week. In fact, since Trump was elected U.S. bank stocks have been killing it.

Bank-related stocks have grown 13%, according to the Dow Jones U.S. Banks Index, outpacing the S&P 500, which has grown 3.5 percent. An ETF tracking the performance of banks of all size, the Invesco KBW Bank ETF has increased 15 percent. Bank wins long-predate the election, with the Dow Jones Banks Index growing by a whopping 63% over the past year.

If banks are doing so well, are the regulations Trump and his team wants to kill really so bad? Mayo says that even while loans on bank balance sheets have been growing, they’ve been doing so at about a quarter percent less than GDP growth for the past 5 years. “Long growth has been pathetic,” he says. He believes that reducing regulation will lead to better lending rates and more borrowers.

A report by Barclays lead large-bank analyst, Jason Goldberg, says some investors are apprehensive about the opportunities. Obstacles include unexpected side-effects of numerous possible bank regulation changes, and uncertainly about changes to tax policy, tariff policy, trade policy, international policy, energy policy and immigration policy.

Loan growth is among the biggest wins expected by investors polled as part of the Barclays report. In the week following the election, 56% of banks told the London-based bank they expected an increase in the value of loans outstanding compared to 16% that expected a decrease and 30% that expected no change. Barclays stock is up 3.7% since the election.

Interestingly, what Goldberg describes as concerns about “weak oversight” of non-bank financial companies, including an “expected embrace of cryptocurrency” could also materially change banks’ competitive landscape. In other words, a rise in industrial banks owned by non-banks and growth among fintechs. “There is certainly a fair amount of optimism in the air,” wrote Goldberg. “Still, several investors have expressed caution.”

Federal vs. state banks

Brad Caswell, a partner at New York law firm Linklaters says that while every transition of power comes with its own sense of uncertainty, the Trump election opens up a wider chasm of unknowns than normal. Specifically, Caswell says Bessent will have to figure out how to deal with controversial Environmental, Sustainable, Governance (ESG) investing disclosures.

Several states, led by Florida, have been fighting to prohibit banks from asking about the carbon impact of their clients. Others, notably California, are mandating environmental impact disclosures. The Biden-appointed acting comptroller of the currency, Michael Hsu, who oversees national bank regulation, fought diligently to ensure federal bank regulations supersede state regulations.

But Hsu was never confirmed for the role after being unable to win bipartisan support—something whoever Bessent nominates for the position won’t have to worry about. With Republican control of the Senate and the House of Representatives, whoever Bessent selects to lead the OCC will almost certainly be confirmed, likely leading to more freedom at the state level.

“I think that it’s fair to say that ESG at the federal level is going to change radically,” says Caswell, who heads Linklaters’ US financial regulatory group. “It has been a priority of the current administration, the current SEC and I think that those new rules at the federal level are likely to stall and actually move in the other direction. But like everything, it’s not so simple.”