Investors are mistaken if they are buying big Wall Street bank stocks out of a sense that Congress is preparing to free them from the constraints put in place in the wake of the financial crisis, according to analysts who track financial services legislation.
“I think an investor who is basing their decision on the prospects of regulatory relief legislation is making a mistake for the biggest banks,” said Brian Gardner, a policy analyst with Keefe, Bruyette & Woods, in an interview with MarketWatch.
Any benefits for large banks are going to be “nibbling around the edges,” Gardner added.
The House of Representatives on Thursday did pass a Republican measure containing some items that are surely on any “wish list” of the big banks. For instance, the measure would allow them to resume proprietary trading barred by the Volcker rule that was added to the Dodd-Frank law.
As a result, bank shares
are on track to log their best weekly gains since the week President Donald Trump was voted into the White House.
But analysts said there was no way the House Republican measure, known as the Choice Act, would pass the Senate in its current form. Any legislation in the upper chamber needs to attract some Democratic support.
Ian Katz, an analyst with Capital Alpha Partners, said the Senate will put the Choice Act “where it doesn’t get sunlight or water” and focus on writing its own legislation.
Sen. Mike Crapo, the Republican from Idaho who is the chair of the Senate Banking Committee, has been quietly working to build Democratic support for a much more modest piece of bank relief.
“I think we’ll see a focus on community and regional banks” in the Senate, said Steve Camp, chair of the banking and finance group of Gardere, a Dallas law firm.
In the debate over the House bill, Republicans and Democrats attacked each other for doing the bidding of the Wall Street banks.
Jaret Seiberg, an analyst at Cowen Washington Research Group, said this was a sign that the political climate remains quite negative for the biggest banks.
“We believe any provision that is deemed as pro-Wall Street will have trouble advancing,” Seiberg said. He said there was even a risk that a bank tax could emerge at the last second as a revenue offset to any corporate tax bill.