Weekly Wisdom: Leveraging Deregulation for Long Term Appreciation

Public Banks Strength Against Private Credit Headlines

The narrative surrounding stress in private credit has created a “guilt by association” drag on the financials sector, yet the data tells a story of immense public bank strength. Isolated issues at firms like Tricolor, First Brands Group, and 777 Partners along with overexposure in volatile sectors like software highlight underwriting failures in niche areas, but they do not signal a systemic crisis. For those interested, we provided a technical breakdown and commentary of these current developments in our Private Credit Update. In contrast, the U.S. Big Six banks are currently operating from a position of power with stronger underwriting standards and improved risk controls compared to prior cycles. These institutions hold approximately $170 billion in excess capital, a surplus expected to approach $200 billion in the near term.¹ While private market vehicles grapple with transparency and liquidity concerns, major public banks are benefiting from diversified revenue streams and disciplined processes.

Unleashing Bank Capital Through Deregulation

A transformative shift in the regulatory landscape has emerged as U.S. regulators unveiled plans to significantly ease capital requirements for the nation’s largest lending giants. This strategic pivot is expected to result in a 4.8% aggregate decrease in common equity tier 1 capital for big banks, with some smaller institutions seeing cuts as high as 7.8%.² By streamlining the supplementary leverage ratio and reducing capital constraints, this deregulation is designed to unleash billions of dollars for new lending, share buybacks, and increased dividends. Furthermore, this move is pressuring European regulators to loosen their own frameworks, which requires banks to maintain 8% capital, to preserve global competitiveness.³ For investors, this represents a significant removal of growth barriers, allowing traditional lenders to compete more effectively with non-bank entities and private credit.

Proposed Capital Requirements Impacts Chart⁴

Fed Stability and Confidence Amid Transitory Shocks

The Federal Reserve maintained the federal funds rate at 3.5%–3.75% during its March meeting, a decision that reflects a balanced approach to current global uncertainties.⁵ While the conflict in the Middle East and the resulting energy shock have pushed 2026 PCE expectations up to 2.7%, the Fed has signaled that these pressures are largely transitory and expected to come back down next year. The Fed continues to project a rate cut this year, and a growing appetite for easing is evidenced by Stephen Miran’s dissent in favor of an immediate 25-basis-point cut (projecting 100 bps of easing this year).⁶ We believe the Fed’s outlook suggests a near-term inflation shock rather than a long-term trend, which eventually supports more stimulative rates and provides a powerful tailwind for bank valuations.

While recent employment figures have shown signs of cooling, the broader economic foundation remains remarkably firm. Federal Reserve officials additionally noted that the unemployment rate has remained minimally impacted by the conflict in Iran, with projections suggesting it will settle between 4.2% and 4.4% by the end of 2026.⁷ Despite a slight uptick in caution, policymakers actually upgraded their 2026 GDP growth outlook to 2.4%. For the financial sector, this environment is ideal: growth is steady enough to support loan demand and healthy credit quality, yet the labor market is not overheating in a way that would force aggressive, restrictive policy. We view the current stabilization as a positive scenario that supports a long-term expansionary cycle for financial institutions.

Positioned for Strength

The convergence of regulatory relief and macroeconomic resilience creates a favorable backdrop for the financial sector. Between the substantial capital tailwinds provided by the Basel III recalibration and a Federal Reserve that views current geopolitical inflationary pressures as transitory, the path forward for traditional lenders is increasingly clear. Ultimately, as short-term uncertainties regarding the Middle East transition into known quantities and the focus shifts back to pro-growth deregulation and rate normalization, we believe the financial sector is exceptionally well-positioned to drive the next leg of market appreciation.

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[1] UBS Analyst Note: as of March 23, 2026
[2] Bloomberg News: as of March 19, 2026
[3] Politico, as of March 23, 2026
[4] Bloomberg News: as of March 19, 2026
[5] Bloomberg, as of March 18, 2026
[6] Associated Press, as of March 19, 2026
[7] Associated Press, as of March 19, 2026