US Bank Stocks Revival Depends on Relaxed Rules and Deal Recovery

The banking sector's resurgence in 2025 mirrors the strategic shifts of the New Deal era, when regulatory reforms stabilized a fractured financial system. Today's deregulatory wave, akin to FDR's initial steps to rebuild confidence, could catalyze a similar revival—but with distinct risks. As banks shed post-2008-era constraints, their profitability hinges on balancing expanded lending and investment opportunities against vulnerabilities like financial crimes and market volatility. Among the sector's leaders, Bank of America (BAC) stands out, combining historical resilience with modern ESG risk management.

Historical Parallels: From Crisis to Deregulation

The New Deal's Emergency Banking Act of 1933 and Glass-Steagall Act restructured banking, separating commercial and investment activities while stabilizing depositors' trust. These policies, though regulatory, created a framework for post-crisis growth. Today's deregulation—such as the rollback of the CFPB's consumer protection rules and reduced scrutiny of third-party risk—echoes that era's emphasis on enabling banks to operate more freely.

Just as FDR's policies restored liquidity and confidence, current easing of capital requirements and supervisory exams aims to free banks to lend aggressively. The result? A potential boom in M&A activity and risk-taking, boosting fee income and net interest margins.

The Case for Bank of America (BAC)

Bank of America's first-quarter 2025 results exemplify its readiness to capitalize on deregulation:
- Global Markets Dominance: Revenue rose 12% year-over-year to $6.6 billion, driven by record equities trading (+17%) and disciplined risk management.
- Balance Sheet Strength: Deposits grew 8% to $2 trillion, with liquidity at $1 trillion, shielding against macro risks.
- Regulatory Relief: Exiting a CFPB consent order early reduced compliance costs, freeing capital for tech investments and shareholder returns.

Risks Looming Over the Revival

While deregulation offers upside, two critical risks persist:
1. Financial Crime Exposure: Reduced oversight may increase susceptibility to fraud and money laundering, particularly as banks expand into cross-border transactions.
2. Market Volatility: Geopolitical tensions and inflationary pressures could destabilize trading revenues, as seen in BAC's 3% drop in investment banking fees in Q1 2025.

Investment Thesis: BAC as a Top Pick—With Caution

Bank of America's operational resilience stems from its diversified income streams, robust capital (CET1 ratio of 13.5%), and AI-driven efficiency. Its $3 billion annual tech spend positions it to outpace peers in risk management and client service.

Buy Signal: The stock's YTD rise of 18.3% to $39.75 reflects investor optimism. Technical analysis shows it trading above its 50- and 200-day moving averages, suggesting further upside toward $42.50 by mid-June.

Hold Until: Monitor the Federal Reserve's stance on interest rates and trade policy developments. A resolution of geopolitical risks could unlock sustained momentum.

Conclusion: Navigating the New Regulatory Landscape

The banking revival hinges on banks' ability to balance deregulatory freedom with prudent risk management. Bank of America's track record in ESG integration—combining strong capital, tech innovation, and regulatory agility—makes it a standout pick. Yet investors must remain vigilant: the path to profit may be as bumpy as the road from the Great Depression.

Final Note: For long-term gains, pair BAC with sector ETFs like KBW Bank (KBW) to diversify risks. But remember: history repeats itself, but not always smoothly.