Bank Deregulation Has 80% Likelihood Of Passage, Says Height Capital

Bank deregulation legislation is close to becoming a reality in Washington, D.C., with the Senate voting 67-32 to proceed with an amended bill on March 6. The odds of the bill becoming law before the August recess is now 80 percent, according to Height Capital Markets. 

Senate approval for the bill is likely to come on Wednesday or Thursday of this week, said analyst Ed Groshans. 

The House's Take 

The House of Representatives could hinder the passing of the bill if members choose to introduce any potential amendments, Groshans said in a Monday note. House Financial Services Committee Chairman Jeb Hensarling released a list of 29 bills he wants to include, one of which has the potential to derail the Senate bill, the analyst said. 

The analyst said he sees no real risk to the passage of the bill in the House due to its Republican majority.

If there are significant disagreements on certain House amendments, the bill could hit a roadblock in the Senate, where Democratic support is needed to pass the bill, Groshans said. 

The final passage is likely in late May to June, the analyst said. 

See also: Goldman Sachs: Bank of New York Mellon Shares Have Modest Upside Potential North Of $60

The Beneficiaries Of Bank Deregulation

Height Capital Markets said 17 regional banks could see some regulatory relief from the raising of the systemically important financial institution, or SIFI, threshold from $50 billion to $250 billion.

Within 18 months, the following banks with $100 billion to $250 billion in assets would no longer be designated SIFI and would no longer be subject to the Federal Reserve's Comprehensive Capital Analysis and Review, or CCAR.

The Federal Reserve has the authority to remove the SIFI designations earlier, according to Height Capital Markets. 

"This means the banks would have more control over their capital planning process, including dividend payments and share repurchases, and the Federal Reserve would have less influence, not [zero] influence, over the banks' capital planning processes," Groshans said.

The analyst named the following banks as beneficiaries of a higher SIFI threshold: 

  • Zions Bancorp ZION
  • Comerica Incorporated CMA
  • Regions Financial Corp RF
  • Huntington Bancshares Incorporated HBAN
  • KeyCorp KEY
  • American Express Company AXP
  • Discover Financial Services DFS
  • Ally Financial Inc ALLY

The following four banks with assets between $50 billion and $100 billion would not be designated SIFI if the bill is signed into law, Groshans said: 

  • Synchrony Financial SYF
  • Comerica Incorporated CMA
  • Zions Bancorp ZION
  • E*TRADE Financial Corp ETFC

The following five banks with assets under $50 billion would have the leeway to grow or acquire assets without being subject to additional regulations, according to Height Capital Markets: 

  • CIT Group Inc. (NYSE: CIT
  • New York Community Bancorp, Inc. NYCB
  • People's United Financial, Inc. PBCT
  • Popular Inc BPOP
  • East West Bancorp, Inc. EWBC

Price Action

The Financial Select Sector SPDR Fund XLF has gained about 20 percent over the past year.

Related Link:

Barclays Notches Sell-Side Upgrade On Capital Progress, Dwindling Regulatory Risks

Posted In: Ed GroshansHeight Capital MarketsPresident Donald TrumpU.S. House of RepresentativesU.S. SenateAnalyst ColorPoliticsTop StoriesAnalyst RatingsGeneral

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