Trump and Musk on Banks
Five things to watch
In an extraordinarily disruptive first five weeks of the second presidency of Donald Trump, the administration’s impacts on the banking sector have not necessarily been top of mind for most Americans. There have been a wide range of more pressing, jarring, and politically heated areas of focus thus far.
Yet nearly every American adult has a bank account, and the industry is changing rapidly for reasons that have nothing to do with Trump and Elon Musk. Forces like artificial intelligence, shifting generational preferences, and ongoing technological evolution were already reshaping finance long before Trump retook the oath of office. But that doesn’t mean his administration won’t leave its mark. In fact, between executive action, legislative pressures, and the ever-present volatility of Trumpian decision-making, banks are poised for a period of significant change—some of it predictable, some utterly unknown.
Here are five key areas to watch:
1. The Consumer Financial Protection Bureau (CFPB)
The CFPB, long a target of conservative critics, is expected to see an overhaul under Trump, if not be shuttered altogether. Established in the aftermath of the 2008 financial crisis, the agency was designed to shield consumers from predatory lending practices and hidden fees. To give a flavor of its activities, per a recent article from NPR:
In December, the CFPB sued Bank of America, JPMorgan Chase and Wells Fargo for allegedly failing to protect customers from fraud on the payment app Zelle. Last month it sued Capital One for failing to pay more than $2 billion in interest to its customers for advertising a high-yield checking account that actually paid an interest rate close to zero.
The agency says that, since its inception, it's helped consumers to the tune of $21 billion through monetary compensation, loan principal reductions, canceled debt and more.
Trump’s first term saw efforts to weaken it, and this time around, those efforts have accelerated, with Trump and Musk already telling CFPB employees to cease all activities and stop all work in progress.
Regarding the CFPB specifically but the finance sector more generally, expect deregulation, a softer stance on corporate oversight, and fewer consumer-first policies. For everyday account holders, this could mean fewer restrictions on overdraft fees, credit card interest hikes, and payday lending practices. The rhetoric will likely be framed around “economic freedom,” but the practical effects could make banking costlier for the average American.
2. Bank Fees
Speaking of costlier banking, let’s talk fees. Under the Biden Administration, the CFPB cracked down on so-called “junk fees” that banks have long charged customers, including overdraft penalties and account maintenance costs. With Trump back in charge, banks will likely have more leeway to reinstate or expand these charges. Whether they actually do is another question. The modern consumer, particularly younger generations, has grown accustomed to fee-free banking options from fintech startups and online-only banks. If traditional banks lean too heavily on fees, they may push even more customers toward non-traditional financial services. Watch for a tension between profitability and customer retention amid major evolutions in the banking industry.
3. Interest Rates and the Independence of the Fed
Trump’s disdain for the Federal Reserve is well documented. During his first presidency, he frequently lashed out at the central bank, arguing for lower interest rates to stimulate economic growth. This time around, with inflation still a concern, the Fed has resisted pressure from the White House to cut rates. But resistance only matters if it holds. Trump has flirted with the idea of removing Fed Chair Jerome Powell and replacing him with a more pliable alternative. Should he succeed, we could see aggressive rate cuts, which would likely boost borrowing and investment in the short term while raising long-term concerns about inflation and financial stability. For savers, lower rates mean less return on deposits; for borrowers, it could mean cheaper mortgages and business loans—at least temporarily.
4. Mergers and Acquisitions
Bank consolidation has been a steady trend for years, with large institutions gobbling up smaller ones in a bid to scale and compete with tech-driven banking giants. The Biden Administration applied more scrutiny to major mergers, but under Trump, that scrutiny could fade. Expect a renewed push for big banks to get bigger, potentially leading to fewer local and regional banking options. At the same time, fintech companies—less regulated and more agile—will continue to disrupt the space, offering banking services without the traditional brick-and-mortar footprint. If Trump and Musk’s administration leans into deregulation, we could see an era of unfettered financial deal-making that reshapes the industry at an even faster pace.
5. Capital Requirements
After the banking instability of early 2023, there was a renewed focus on ensuring that banks held enough capital to withstand crises. The Biden Administration sought to impose stricter capital requirements, particularly for mid-sized banks. Under Trump, those regulations could be relaxed in the name of economic growth. That’s good for banks’ profitability in the short run not to mention borrowers and local communities; requiring banks to hold less capital allows them to lend more out, thereby creating economic opportunities and supporting both consumers and businesses. But this could also leave the financial system more vulnerable in times of economic distress if banks become overleveraged, which could lead to a boom-and-bust cycle and a perilous economic landscape over the longer term.
The Bigger Picture: Stability and Animal Spirits
For all the changes in policy, the most important factor for banks is a stable, healthy economy. And stability is not exactly Trump’s brand. Markets thrive on confidence, and while investors often cheer deregulation and tax cuts, they also loathe uncertainty. With an unconventional White House, trade tensions, and an unpredictable approach to governance, banks may find themselves in an environment where short-term gains are plentiful, but long-term risks to themselves and the consumer are heightened.
In economic circles, the term “animal spirits” describes the psychological and emotional factors that drive markets—confidence, optimism, fear. It feels to me right now like animal spirits have been unleashed. The banking industry is caught in a delicate balance, navigating a landscape where the rules may change overnight. Buckle up.
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Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Addendum
How have bank stocks done since Election Day? Some of the Big Banks are up big. JP Morgan Chase, Citigroup, and Goldman Sachs are all up over 20%. Bank of America is up a more modest 7%. A regional bank index fund that I follow and in the interest of full discloser have invested in (ticker symbol: IAT) is up just 2%, although it has risen 26% in the last year. This data above is just based on a short-term time horizon, but the fact that the biggest banks are up the most as compared to America’s smaller regional banks perhaps shows who investors believe have the most upside right now (I wouldn’t necessarily go chasing the gains, though).