Banks rise on regulatory hopes

Regulatory Environment & Capital Management - The Federal Reserve's stress test indicates a less onerous, less volatile, and more transparent regulatory environment for banks [3] - The stress test freed up an estimated $100 billion in capital, potentially enabling $1 trillion in loans, deals, and buybacks [3] - The Fed is considering loosening the supplementary leverage ratio (SLR), further boosting investor optimism regarding capital freedom [5] - Analysts expect the proposed SLR change to be enacted after a comment period, potentially cutting in half the extra capital banks must hold against their entire balance sheet [7][8] Stress Test Results & Implications - The recent stress test was considered the easiest in years due to banks' improved fundamental starting point [4] - JP Morgan's research suggests low trading losses in the test may reflect favorable client positioning on the shock day, with Wells Fargo and Goldman Sachs benefiting the most [4] - The street views the low trading losses as a potential anomaly this year [5] - A process is in place to average stress test results over two years, potentially reducing volatility [10] Banking Industry Outlook - The S&P bank's industry group is surging to a fresh record, driven by indications of regulatory easing [2] - Banks are poised to return more capital to shareholders through dividend hikes and buybacks, to be announced after the close [3] - Banks perceive the need for SLR reform, as holding capital against risk-free assets like treasuries discourages intervention in treasury markets [9]