The Trump Deregulation Catalyst: Why U.S. Megabanks Are Poised for Sustained Growth

The U.S. banking sector is entering a new era of strategic tailwinds, driven by regulatory reforms that are reshaping the competitive landscape. At the heart of this transformation lies the Trump administration's deregulatory agenda, which has systematically reduced capital requirements for megabanks while enhancing their ability to deploy capital efficiently. These changes, coupled with a favorable macroeconomic environment, are unlocking value for investors and positioning U.S. banks to outperform global peers, particularly European institutions still navigating complex regulatory frameworks.

Deregulation as a Strategic Catalyst

The 2025 FDIC leverage rule changes represent a pivotal shift in U.S. banking policy. By lowering the enhanced supplementary leverage ratio (eSLR) for bank holding companies from 5% to 3% (plus half of the Method 1 GSIB surcharge) and for depository institution subsidiaries from 6% to 4%, regulators have effectively reduced capital buffers for megabanks. For global systemically important banks (GSIBs), this translates to a 27% reduction in capital requirements for subsidiaries-equivalent to $213 billion in released capital-and a 2% reduction for holding companies. These adjustments remove disincentives for engaging in low-risk activities like U.S. Treasury market intermediation, a critical function for maintaining liquidity in global financial markets.

Critics, including Fed Governor Lisa Cook and Senator Elizabeth Warren, argue that reduced capital buffers could heighten systemic risk. However, the data suggests otherwise. In Q4 2025, dry powder levels for U.S. banks hit a record low of 27.8% of total assets under management, signaling aggressive capital deployment into loans, mergers, and acquisitions. This efficiency is further amplified by a reinstated rate-cutting cycle, which has spurred cautious lending and bolstered private equity and M&A activity.

Capital Deployment Efficiency: A U.S. Edge

The regulatory tailwinds are translating into tangible gains in capital utilization. By April 2026, when the new eSLR rules fully take effect, megabanks will have additional flexibility to allocate capital toward high-return activities. For instance, JPMorgan Chase and Bank of America have already signaled plans to increase loan growth and expand their investment banking divisions, leveraging the newly available capital. This contrasts sharply with the constraints faced by European banks, which remain shackled by more rigid capital frameworks.

A comparative analysis of U.S. and European banks underscores this divergence. While both jurisdictions maintain similar average CET1 requirements for G-SIBs (11.54% for U.S. banks vs. 11.58% for Eurozone peers), the U.S. system's reliance on standardized approaches for credit risk and its exclusion of operational risk from capital calculations create a more business-friendly environment. European banks, meanwhile, are still grappling with the implementation of Basel IV's output floor and the gradual phase-out of internal models, which have slowed their ability to streamline capital planning.

Investment Banking: U.S. Megabanks Outpace European Peers

The investment banking sector has emerged as a key beneficiary of U.S. deregulation. In Q3 2025, U.S. banks reported a 5% year-on-year increase in net interest income (NII), outpacing European peers' 2% rise. This growth is driven by higher fixed-rate bond portfolios and reduced funding costs, which have preserved margins in a low-interest-rate environment. Additionally, U.S. banks have capitalized on the surge in M&A activity, with large transactions above $1 billion and private equity dynamism fueling fee income.

European banks, despite a 14.71% rise in their S&P Europe BMI Banks index during Q3 2025, face structural challenges. While their noninterest income and trading revenues have outperformed U.S. counterparts, their cost-to-income ratios remain elevated, with leading institutions like Deutsche Bank and Barclays reporting ratios just below 60%. In contrast, U.S. banks have maintained cost discipline while expanding revenue streams, a testament to their agility in a deregulated environment.

Systemic Risk vs. Profitability: A Calculated Trade-Off

The debate over systemic risk versus profitability is central to the deregulation narrative. Critics warn that reduced capital buffers could expose the financial system to shocks, particularly in a low-interest-rate environment. However, the ECB's recent reforms-simplifying leverage ratios and introducing a single buffer-suggest that European regulators are beginning to recognize the U.S. model's advantages. By aligning with Basel III standards while maintaining flexibility, U.S. regulators have struck a balance between resilience and growth.

Moreover, the U.S. banking sector's focus on low-risk activities, such as Treasury market intermediation, inherently reduces exposure to volatile assets. This strategy, combined with the sector's strong balance sheets and historically high return on equity (ROE), positions megabanks to weather potential downturns while continuing to generate shareholder value.

Conclusion: A Compelling Investment Case

The confluence of regulatory tailwinds, efficient capital deployment, and robust investment banking performance makes U.S. megabanks a compelling long-term investment. As the 2025 FDIC rule changes fully materialize in 2026, banks like JPMorgan Chase, Goldman Sachs, and Citigroup are well-positioned to capitalize on the newly available capital, driving growth in loans, M&A, and fee-based services. While European banks are showing signs of recovery, their regulatory and structural constraints will likely keep them at a disadvantage. For investors seeking exposure to a sector poised for sustained growth, U.S. megabanks offer a unique combination of resilience, profitability, and strategic momentum.