The Great Unshackling: How Regulatory Rollbacks Could Reshape Big Banks—and Your Portfolio

The financial sector is undergoing a quiet revolution. Over the past decade, regulators have steadily dismantled the post-2008 framework designed to prevent another crisis, with profound implications for capital allocation, risk-taking, and valuations. For investors, this shift represents both opportunity and risk—a landscape where banks like JPMorgan Chase (JPM), Bank of America (BAC), and Goldman Sachs (GS) could see their value propositions redefined. Let's unpack the forces at play.

The Capital Efficiency Play: Lighter Rules, Heavier Returns

The most significant regulatory rollback involves capital requirements. The proposed reduction of the Enhanced Supplementary Leverage Ratio (eSLR) for the largest U.S. banks—from 5% to 3.6%—could free up $13 billion in capital. For context, show a steady climb, but imagine the acceleration if the bank could deploy this capital into high-return assets like loans or share buybacks instead of holding excess reserves.

The Basel III “Endgame” reforms, which initially aimed to boost capital buffers by 19%, have been scaled back to a 9% increase—a compromise that still leaves banks with more flexibility. For instance, reveals a pivot toward shareholder returns as regulatory burdens ease. This dynamic suggests that sector-wide return on equity (ROE) could rise meaningfully, a key driver of banking stock valuations.

Risk Appetite: A Double-Edged Sword

Eased oversight has also emboldened banks to take on riskier bets. The 2018 Dodd-Frank rollback raised the threshold for “systemically important” banks from $50 billion to $250 billion, freeing smaller institutions from stringent rules. This creates a two-tiered system: large banks can expand into complex trading and crypto (more on that later), while mid-sized banks may pursue riskier loans to compete.

Critics argue this increases systemic fragility—a concern underscored by the 2023 Silicon Valley Bank collapse. Yet proponents counter that markets, not regulators, should price risk. For investors, this means monitoring banks' exposure to volatile sectors like crypto or emerging markets.

Valuation Multiples: Are Banks Undervalued?

The sector's valuation is a battleground. Current price-to-book (P/B) ratios for major banks hover around 1.5x–2x, below their pre-2008 peaks but also below historical averages. reveal a consistent undervaluation relative to periods of deregulation. If capital efficiency gains and risk-taking boost ROEs to 15%–20% (vs. current ~12%), multiples could expand to 2.5x–3x—a 50% upside.

The crypto push adds another layer. The second Trump administration's pledge to make the U.S. a “crypto capital” aligns with banks' ambitions to profit from digital assets. While crypto exposure remains niche, shows that investor sentiment toward financial innovation could lift banking stocks indirectly.

Investment Implications

1. Overweight Large Banks: Institutions like JPM, BAC, and Citigroup (C) are best positioned to capitalize on regulatory tailwinds. Their scale allows them to navigate both traditional finance and emerging crypto markets.
2. Underweight Mid-Tier Banks: Smaller banks (e.g., Truist (TRO), Zions Bancorp (ZION)) may struggle to compete unless they take on excessive risk. Their P/B ratios are already near historical lows.
3. Consider ETFs: The Financial Select Sector SPDR Fund (XLF) offers diversified exposure to the sector's upside while mitigating stock-specific risks.
4. Monitor Systemic Risks: Investors should watch for signs of overleveraging, such as rising loan defaults or declining credit quality.

The Bottom Line

Regulatory rollbacks have created a new paradigm for big banks—one where capital is unleashed, risk-taking is normalized, and valuations could finally catch up to post-crisis optimism. For investors, this is a call to tilt portfolios toward financial giants poised to capitalize on deregulation. But remember: the next crisis won't be averted by today's policies—it'll be shaped by them.

Disclosure: This analysis is for informational purposes only. Always conduct your own research before making investment decisions.