- Wall Street banks earned $37bn in Q1 trading revenue despite market volatility
- Trump’s
tariff chaos and recession fears are fuelling urgent calls for deregulation
- Bank
CEOs see reform of the Supplementary Leverage Ratio (SLR) as imminent
- Fed
Chair Powell appears open to easing Basel III capital rules
- Critics
warn this may repeat the mistakes that led to the 2023 banking crisis
In a year marked by economic
whiplash, soaring Treasury yields, and tariff-induced chaos from the Trump
administration, Wall Street banks are defying gravity—and rewriting the rules
while they’re at it.
Over the past fortnight, shares
in major US banks have surged as investors looked past rising recession risks
and instead celebrated a $37 billion trading windfall earned by JPMorgan,
Goldman Sachs, Morgan Stanley, Bank of America, and Citigroup in the first
quarter of the year.
For all the talk of market
stress, the big players are thriving, buoyed by volatility and their clients’
appetite for both bullish bets and fear-fuelled hedges.
But behind the scenes, a bigger
shift is underway: a strategic push by banking giants to leverage economic
disruption into a fast-tracked deregulation agenda—one that could reshape the
financial sector by year-end.
The rally isn’t just about
earnings. As Goldman Sachs CEO David Solomon put it, “Clients are still very
active,” noting that trading trends remained strong beyond the end of the
quarter.
JPMorgan chief Jamie Dimon,
meanwhile, was quick to connect the dots between volatility in Treasuries and
the need to loosen regulations so banks can act as better market stabilisers.
The most pressing target? The
Supplementary Leverage Ratio (SLR), which currently counts Treasury holdings as
part of banks’ total exposure. Fed Chair Jay Powell recently told Congress that
“it’s time” to revisit this calculation.
Proposed changes could exempt
Treasuries or lower the minimum ratio—a potential windfall for banks and a move
analysts believe could arrive by year-end.
The deregulation drumbeat
doesn’t stop there. Powell hinted that the US is ready to further soften the
Basel III Endgame capital requirements. And with Trump’s nominee Michelle
Bowman poised to become vice-chair for supervision at the Fed, the stage is set
for another round of “tailwinds,” as Solomon described it, for bank capital
structures.
Critics are quick to note the
déjà vu. The last major deregulatory wave under Trump’s first term, led by
Randy Quarles, was a key contributor to the 2023 regional banking crisis.
By easing rules on mid-sized
banks, regulators helped create a system vulnerable to liquidity shocks and
poor risk oversight—an episode that forced costly federal interventions and
rattled public trust.
And yet, the current momentum
appears unstoppable. The market, say analysts, is not pricing in these
regulatory shifts.
“This is not a look-forward
market,” warned Morgan Stanley’s Betsy Graseck, pointing out that
deregulation’s longer-term implications remain largely ignored by investors
focused on near-term gains.
Dimon’s argument that
deregulation is “relief to the markets, not the banks,” may sound persuasive,
but it belies the potential consequences.
Reducing capital buffers and
loosening oversight may help banks support the Treasury market now but could
set the stage for future fragility - especially if interest rates remain
elevated and geopolitical instability continues.
The message from Wall Street is
clear: regulation must move aside to make room for market agility. And Trump,
whose tariff feints and inflationary gambits have unnerved investors, appears
to be listening.
Just days before pausing his
controversial global tariff plan, the president received stark warnings from
both Goldman Sachs and Dimon about recession risks.
The question now is not whether
deregulation is coming—it is. The question is whether, in solving today’s
liquidity concerns, policymakers are laying the groundwork for tomorrow’s
crisis.
As history shows, banking
regulation has a short memory, and Wall Street always knows how to sell a
comeback.