The Lombard Review
Markets & Finance

The winners from a Republican sweep

Capital relief expectations lift regionals

The Manhattan skyline from Upper New York Bay
The Manhattan skyline from Upper New York BayPhoto: Jakub Hałun / Wikimedia Commons, CC BY 4.0
1 min read Data: KRE ~+13% (6 Nov)

The morning after Donald Trump’s electoral victory, equity markets delivered a spectacular divergence. While long-term bonds sold off, regional bank stocks experienced their most explosive rally in years, with the SPDR S&P Regional Banking ETF (KRE) surging over thirteen per cent in a single session.

The U.S. Capitol and the Grant Memorial
The U.S. Capitol and the Grant MemorialPhoto: Martin Falbisoner / Wikimedia Commons, CC BY-SA 3.0

The Deregulation Euphoria

Investors are aggressively pricing in a comprehensive dismantling of the Biden administration's regulatory apparatus. A Trump-appointed regulatory regime is expected to water down or scrap the punitive 'Basel III Endgame' capital surcharges, terminate aggressive antitrust scrutiny of bank mergers, and soften commercial real estate supervision. Regional banks are celebrating the prospect of diminished regulatory friction and restored capital return capacity.

New York Stock Exchange signage on Broad Street
New York Stock Exchange signage on Broad StreetPhoto: Billie Grace Ward / Wikimedia Commons, CC0

The euphoric post-election surge in regional bank shares reflects an unhedged bet that sweeping financial deregulation will liberate bank capital and ignite a lucrative consolidation cycle.