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Tuesday, June 13, 2017

Wall Street loves the Trump administration’s plan to dismantle financial crisis regulations (GS, JPM)

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U.S. Treasury Secretary Steve Mnuchin testifies before the House Financial Services and General Government Subcommittee hearing on the Treasury Department's budget on Capitol Hill in Washington, U.S., June 12, 2017. REUTERS/Yuri Gripas

Wall Street is in love with the Trump administration’s plan to cut regulations imposed after the financial crisis.  

The Department of the Treasury on Monday released a 150-page report, which suggests about 100 changes to the financial regulatory framework.

The majority of the report’s proposals would not require congressional approval to be implemented, according to Secretary of the Treasury Steve Mnuchin.

“We were very focused on, what we can do by executive order and through regulators,” he said. “We think about 80 percent of the substance in the report can be accomplished by regulatory changes, and about 20 percent by legislation.”

Wall Street has praised the thoroughness of the report.

“We are impressed by how comprehensive the report is,” Cowen & Co, a New York-based broker dealer, said in an email. Credit Suisse sang a similar tune in a note out to clients Tuesday.

“Simply put, the recommendations—and they are extensive–are consistent with, if not more constructive and more detailed than we had anticipated,” the bank said. 

That said, the Street doesn’t think the recommendations in the lengthy report all have an equal shot at implementation. 

“Changes requiring legislation are much less likely,” said a group of analysts at Goldman Sachs in a note out Tuesday.  

Such changes include an alteration of the threshold of the Systemically Important Financial Institutions designation, the level at which a bank is deemed by the government as “too big to fail.” Such firms are subject to stricter regulations. A reconstruction of the Consumer Finance Protection Bureau, a regulatory agency founded in the aftermath of the financial crisis, would also require congressional approval. These changes have been viewed as the crown jewel of deregulation by Wall Street firms. 

“These legislative changes remain extremely unlikely given the likelihood of a filibuster in the Senate,” said FBR Capital Markets, a capital markets firm based in Virginia.

To be sure, just because a proposal doesn’t require congressional approval to be implemented, does not mean it can’t have a significant impact. The proposed change to the calculation of supplementary leverage ratio, for instance, could have a big impact, according to Goldman Sachs.

“While we expect that these changes will only lead to a greater level of excess capital for one of our banks, we believe that if this change were implemented, banks could start to make some structural changes to their balance sheets in order to reduce Tier 1 leverage ratios as well, which could free up some excess capital,” the firm said. 

“We continue to have an Attractive coverage view on large cap banks and view the proposed changes as having potentially far reaching benefits,” Goldman added. 

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June 13, 2017 at 11:17PM

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from Frank Chaparro

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