With Donald J. Trump’s return to the White House confirmed on November 6, 2024, the financial industry is preparing for sweeping regulatory changes. From the banking sector to private funds, stakeholders are crafting detailed wish lists, hoping to shape the new administration’s economic and regulatory agenda. Trump’s victory is set to usher in a more business-friendly environment, with Wall Street and asset managers eagerly anticipating reforms.

I. The SEC Under President Trump: A Shift in Priorities

Potential Leadership Changes and Crypto Policy Overhaul

The Securities and Exchange Commission (SEC) under Trump is likely to experience significant upheaval. Trump has explicitly stated his desire to remove current SEC Chair Gary Gensler, who has been a vocal critic of the cryptocurrency industry and an aggressive enforcer of financial regulations. While firing a sitting SEC Commissioner is legally dubious, Trump could demote Gensler from his chair position and appoint a more crypto-friendly Acting Chair. Potential replacements include current Republican Commissioners Hester Peirce and Mark Uyeda, both of whom have advocated for a more accommodating stance toward digital assets.

The mere prospect of a crypto-friendly SEC has already triggered a surge in cryptocurrency markets. Bitcoin reached record highs, nearing $90,000, as investors anticipate regulatory relief. Trump’s promises to make the United States the “crypto capital of the planet” and establish a national Bitcoin reserve have electrified the industry, signaling a potential end to Gensler’s crackdown on digital assets.

However, while the crypto space stands to benefit, questions remain about the long-term impact of looser regulations. Environmental concerns around Bitcoin mining, particularly its massive energy consumption, could still be a sticking point, even under a deregulated framework. As energy policy shifts under Trump, there could be further implications for crypto operations reliant on fossil fuels.

II. Wall Street’s Regulatory Wish List

Deregulation in Banking and Finance

The banking sector is moving swiftly to capitalize on Trump’s victory. Industry trade groups are pushing for a rollback of proposed Basel III Endgame rules, which would require large banks to hold significantly more capital to mitigate financial risks. Banks argue that these requirements are overly burdensome and stifle economic growth. Under a Trump administration, financial institutions hope to see these rules revamped or scrapped altogether.

Other top banking priorities include:

• Easing Fair Lending Regulations: Banks are currently fighting several fair-lending rules in court and hope the new administration will soften enforcement.

• Simplifying Stress Tests: Annual big-bank stress tests could become less rigorous, providing relief to major financial institutions.

• Loosening Merger Oversight: Banks are also advocating for a more lenient approach to bank merger evaluations, which could accelerate consolidation in the financial sector.

The Consumer Financial Protection Bureau (CFPB), which has ramped up enforcement actions under Director Rohit Chopra, is another focal point. Trump appointees are expected to pause or eliminate several CFPB initiatives, including rules on credit card fees, open banking, and “junk fees.” This deregulatory push could ease compliance burdens for financial institutions but may also draw criticism from consumer advocacy groups.

III. Impact on Asset Managers and Private Funds

SEC Rulemaking and Tax Treatment of Carried Interest

Asset managers, particularly those overseeing private funds, are keenly interested in how Trump’s SEC will handle existing regulations. The private fund industry has long been at odds with the SEC’s aggressive rulemaking agenda, and under Gensler’s leadership, the Commission has imposed stricter oversight on hedge funds and private equity firms. A recent victory for private funds came when a U.S. appeals court overturned an SEC rule that mandated increased transparency and oversight. However, several other cases remain unresolved.

The Alternative Investment Management Association (AIMA), representing $3 trillion in hedge and private credit funds, is advocating for more constructive dialogue with regulators. AIMA’s U.S. head of markets policy and regulation, Daniel Austin, anticipates a return to “traditional rulemaking” with proactive engagement rather than the adversarial stance of recent years. Asset managers are hopeful that a Trump administration will foster a regulatory environment that prioritizes efficiency, competition, and investor protection while avoiding heavy-handed oversight.

Another crucial issue is the tax treatment of carried interest. The financial industry is lobbying to preserve the favorable tax status of carried interest, which is currently taxed as capital gains rather than ordinary income. Any changes to this tax treatment could have significant implications for private equity and hedge fund managers.

IV. Broader Economic and Regulatory Implications

Energy Sector Revival and ESG Rollbacks

Trump’s deregulatory agenda is expected to benefit the traditional energy sector significantly. He has vowed to rescind unspent funds from the Inflation Reduction Act and roll back regulations that restrict oil, gas, and coal production. This could lead to a resurgence in fossil fuel investments, although it may also hinder the growth of renewable energy. Asset managers with a focus on Environmental, Social, and Governance (ESG) investing may need to reassess their strategies in light of these changes.

Additionally, Trump’s administration is expected to challenge and potentially dismantle many of the Biden-era ESG regulations. This rollback could spur short-term economic growth in traditional energy sectors but may come with environmental and reputational risks for companies prioritizing sustainability.

Trade Wars and Economic Protectionism

A hallmark of Trump’s first term was his protectionist trade policies, and a second term is likely to bring more of the same. Renewed trade tensions with China could disrupt global supply chains, increase costs for businesses, and create market volatility. Asset managers with international exposure will need to monitor these developments closely and prepare for potential economic disruptions.

V. Legislative and Tax Policy Changes

Preserving Corporate Tax Cuts

The financial industry is also focused on tax policy, particularly the preservation of lower corporate tax rates established under Trump’s 2017 tax reform. Many of these provisions are set to expire, and industry groups are lobbying for their extension. While lower taxes could stimulate investment and economic activity, they may also exacerbate income inequality and increase the federal deficit, raising concerns about long-term economic stability.

Potential for Government Efficiency Initiatives

Trump has proposed establishing a “government efficiency” commission to audit federal agencies, including financial regulators. Although the specifics are unclear, such a commission could recommend significant restructuring, affecting how rules are enforced across various sectors. Additionally, Trump’s potential revival of the “Schedule F” executive order, which removes civil service protections for policy-making employees, could make regulatory bodies like the SEC more politically driven.

VI. Conclusion

The return of Donald Trump to the presidency is set to bring about transformative changes in economic and regulatory policy. While deregulation and tax cuts may offer short-term economic benefits, they also carry risks, including financial instability, environmental degradation, and trade disruptions. Asset managers and financial institutions must stay agile, ready to adapt to a rapidly evolving landscape and leverage opportunities while managing potential downsides.

As Wall Street and the asset management community prepare for a Trump administration, proactive engagement with regulators, strategic portfolio adjustments, and a keen eye on legislative developments will be essential. The next four years promise to be as dynamic and unpredictable as Trump’s first term, with far-reaching implications for markets, industries, and global economic stability.

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