when it comes to a donald trump administration, there are plenty of things investors are still in the dark about. one thing is clear: they think it will be good for banks, particularly smaller ones. after an initial market downturn on news of mr. trump<u+2019>s surprise victory early wednesday, bank stocks rose sharply on the prospect of stronger growth and less regulation. both big and small banks notched gains and the kbw nasdaq bank index, up nearly 5%, marked its sharpest one-day rise since february. <u+201c>we don<u+2019>t have the warren-sanders thrust in any legislation,<u+201d> said dick bove, an analyst at rafferty capital markets, referring to democratic senators elizabeth warren and bernie sanders, who are proponents of stricter bank regulations. <u+201c>it<u+2019>s simply impossible to come up with a single event that is more beneficial to the banks.<u+201d> smaller and midsize firms, though, may do even better than their far-larger peers when it comes to any regulatory easing. mr. trump in general has favored lighter regulation across industries, and he has criticized the dodd-frank regulatory overhaul as unnecessarily harsh on smaller banks. with republicans controlling the white house and congress, outside observers thought wednesday that the consumer financial protection bureau and new fiduciary-duty rules on brokerage firms might also be curtailed. one change that now might happen, for example: the raising of the threshold at which a bank is considered to be <u+201c>systemically important,<u+201d> or a sifi, and subject to federal reserve stress tests. jaret seiberg, an analyst at cowen & co. said he thought the door was open for congress to raise the threshold to $500 billion in assets or abolish it altogether. currently, the level is at $50 billion, so many midsize banks have to undergo the stress tests. investors think that is good news for the smallest of the banks subject to the costly testing requirements, which govern banks<u+2019> ability to return capital to shareholders. shares of zions bancorp . , a midsize lender that has lobbied heavily to roll back the requirement, rose nearly 7%. <u+201c>there<u+2019>s not much that<u+2019>s not good for banks,<u+201d> said john kanas, a longtime bank executive and trump supporter. mr. kanas is retiring from his post as chief executive of florida-based bankunited inc. in january. in particular, mr. kanas said a potential increase in the sifi threshold will likely <u+201c>open the door<u+201d> to mergers among regional banks <u+201c>big time.<u+201d> for big banks, it is more of a mixed bag as republicans have proposed reinstating glass-steagall, which would essentially require the biggest banks to break apart. as well, mr. trump has targeted wall street banks while populist anger toward so-called too-big-to-fail firms persists. and while mr. trump has criticized dodd-frank, the biggest banks haven<u+2019>t advocated for a rollback of the law. while firms have privately complained that some aspects are overly burdensome, big banks have also spent years rejiggering their businesses to be compliant with the law. bank executives have also praised some aspects of the bill for making the industry safer from financial collapse. aside from regulation, major questions remain about the course of financial policy under mr. trump. some observers said they believe he will replace fed chairwoman janet yellen when her term expires in january 2018 and will fill the two other fed vacancies. meanwhile, analysts at keefe, bruyette & woods called mr. trump<u+2019>s approach to monetary policy <u+201c>a mystery.<u+201d> but mr. trump<u+2019>s emphasis in his victory speech on large-scale infrastructure projects had markets thinking fiscal stimulus will lead to growth, and possibly inflation. the yield on the 10-year u.s. treasury rose to 2.07% wednesday, its highest level since january. that, in turn, could lead to more fed rate increases, which would help bank profits. rising long-term yields mean banks earn more on loans whose rates are tied to such measures, such as mortgages. it also means certain securities banks hold on their books will reprice at higher rates when they mature. the opposite was true when yields fell after the u.k. vote to leave the european union in june. traders are still expecting a federal reserve rate increase in december. odds were 76% wednesday, according to the cme group . <u+2014>robin sidel contributed to this article. write to rachel louise ensign at rachel.ensign@wsj.com and christina rexrode at christina.rexrode@wsj.com
bank stocks surge on hope trump lightens regulatory load  - wsj
rachel louise ensign christina rexrode