US Banks Have A Good Year Adding $600bn In Value

Big US banks have added roughly $600bn in market value so far this year, buoyed by a combination of regulatory easing under the Trump administration and a sharp rebound in investment banking and trading revenues. The rally has widened the valuation gap between America’s largest lenders and their European peers, underlining how decisively sentiment has shifted towards the US financial sector.

The combined market capitalisation of the six largest US banks by assets rose to about $2.37tn by mid-year, up from roughly $1.77tn at the end of 2024, according to S&P Global data. The group includes JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. Together, they are now worth more than twice the combined market value of the six largest European banks.

US bank stocks are also on course to outperform the broader S&P 500 for a second consecutive year, reversing a long period in which investors treated the sector with caution. That caution dates back to the aftermath of the 2008 financial crisis, when sweeping reforms forced banks to hold more capital, curb leverage and submit to annual stress tests that many investors saw as punitive.

Those rules are now being loosened. Since returning to office, President Donald Trump has moved quickly to reshape financial regulation, arguing that the post-crisis framework went too far and constrained economic growth. Regulators have proposed allowing higher leverage at the largest banks, overhauling stress tests that determine capital requirements, and withdrawing guidance that limited lending for riskier transactions.

Analysts say the market reaction reflects how meaningful these changes are for bank profitability. Gerard Cassidy, a banking analyst at RBC, said investors had underestimated the drag imposed by post-crisis rules. “The profitability of the industry was severely reduced after the financial crisis because banks had to carry much more capital,” he said. “Deservedly so at the time, but the pendulum has swung back.”

A central focus for investors is the fate of the so-called Basel III Endgame rules, the final phase of global capital reforms agreed after the crisis. Under proposals floated during the Biden administration in 2023, large US banks would have faced a sharp increase in required capital. Bank executives and their investors pushed back hard, warning the rules would hurt lending and competitiveness.

The expectation now is that the final version will be far less onerous. Many of the biggest lenders have already built up capital buffers in anticipation of tougher rules. That leaves them with what analysts describe as excess capital, which can be deployed to expand businesses or returned to shareholders through dividends and share buybacks. “They are all sitting on excess capital because they already prepared for the earlier proposal,” Cassidy said.

The prospect of lighter regulation has coincided with a cyclical recovery in investment banking. After a prolonged slump driven by higher interest rates and subdued dealmaking, activity in mergers, acquisitions and equity issuance has picked up. Trading revenues have also surged, helped by market volatility and strong client demand.

Industry tracker Crisil Coalition Greenwich forecasts that combined revenues from equities and fixed-income trading across the banking sector will exceed previous highs this year, with around $92bn from equities and $163bn from fixed income. That strength has fed directly into share prices, particularly at banks with large capital markets franchises.

Citigroup has emerged as the standout performer among the six, with its shares up around 70 per cent so far this year. The rally reflects growing confidence in a multi-year restructuring aimed at simplifying the group and cutting costs. This month, Citi’s valuation rose above the sum of its parts for the first time since 2018, a symbolic milestone for a bank that has long traded at a discount to peers.

Goldman Sachs shares have climbed by close to 60 per cent, reaching record highs. Investors have been encouraged by a rebound in its core investment banking business and a sustained boom in trading, trends bankers expect to continue into 2026. Morgan Stanley has also benefited from renewed deal flow and resilient wealth management revenues, while JPMorgan and Bank of America have gained from their scale and diversified income streams.

Not everyone is comfortable with the speed of deregulation. Critics warn that easing capital and leverage rules risks sowing the seeds of future instability. Democratic senator Elizabeth Warren has been among the most vocal opponents, arguing that memories of the financial crisis have faded too quickly and that regulators are repeating old mistakes.

So far, investors have shown little sign of sharing those concerns. Saul Martinez, head of US financials equity research at HSBC, said markets appeared relaxed about the prospect of banks taking on more risk. “It is a risk that may come up down the line,” he said. “But given how little bank balance sheets have grown in recent years, there is a sense there is room to do more.”

That confidence rests partly on the view that banks remain far better capitalised than before 2008, even if rules are softened. Stress tests are likely to remain a feature of the regulatory landscape, albeit in a revised form, and executives are keen to stress that discipline has not disappeared entirely.

For now, the rally has reinforced the dominance of US banks on the global stage. European lenders continue to grapple with lower profitability, fragmented markets and stricter regulation, leaving them trailing their American rivals. The divergence is a reminder that policy choices matter deeply for financial markets, and that shifts in Washington can reshape valuations at speed.

Whether the current optimism proves justified will depend on how far deregulation ultimately goes, and whether the economic backdrop remains supportive. As Martinez put it, the fundamentals look strong, but investors will be watching closely to see how much good news is already priced in.