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Election Day is here, finally, and beyond determining the fates of Hillary Clinton and Donald Trump, it may return the Senate to Democratic control. That's a high-risk proposition for the nation's biggest banks.
While some analysts predict any Democratic victory in the Senate would be extremely narrow, it would nonetheless give Sen. Sherrod Brown, D-Ohio, the banking committee chairmanship he needs to more effectively push his agenda of heightened regulation. That includes the legislation he co-sponsored with Louisiana Republican Sen. David Vitter to raise banks' capital buffers to levels that would push them to sell assets.
"The real focus has really been putting higher capital levels on the largest financial institutions based on their mix of business," said Independent Community Bankers of America vice president Paul Merski. "There would be a greater focus on getting that over the winning line in a Brown committee."
The lack of discussion about Wall Street during three Clinton vs. Trump presidential debates suggests that influential legislators on Capitol Hill, including Brown, may be in the driver's seat when it comes to financial regulation. The largest banks, including Bank of America (BAC) , JPMorgan Chase (JPM) , Wells Fargo (WFC) , Citigroup (C) , Morgan Stanley (MS) and Goldman Sachs (GS) , are most likely to be hit with tougher rules.
A Brown banking panel would give progressives, including Sen. Elizabeth Warren, D-Mass., a member of the banking panel, a great deal of influence. For example, Brown is more likely to give Warren a greater platform, through hearings and other means, to drive legislation she introduced that would seek to re-impose a version of the 1933 Depression-era Glass-Steagall Act, effectively breaking up the largest banks by separating their investment banking units from the commercial divisions.
"This is the one issue that unites the far left and the far right," said Cowen Washington Research Group analyst Jaret Seiberg.
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While outright approval of break-up legislation is unlikely, there are other avenues. One route would be to add such a measure in a budget appropriations bill that includes concessions to both parties. Under a Democrat-controlled Senate, former presidential contender Bernie Sanders would become chairman of the budget committee.
Regardless, some observers don't believe bills forcing large financial institutions to divest assets would have a real chance even with a Democratic Senate and a Clinton White House.
"Legislation breaking-up the biggest banks remains unlikely, but the regulatory environment will remain inhospitable," Compass Point analyst Isaac Boltansky said in a note issued Tuesday.
There are, for instance, still high odds of banks being hit by regulators with a "crisis responsibility fee," essentially a tax on the largest financial institutions, Boltansky suggested.
Should Trump win the White House rather than Clinton, the outlook gets murkier. "A Democratic Senate would be a check on his agenda if his plan is to push regulatory relief," said Seiberg, the Cowen analyst.
It's unclear how a Trump administration would respond to Democrat-backed legislation pushing big banks to slim down, on the other hand. Like Clinton, Trump included a provision in his party platform recommending that lawmakers reinstate Glass-Steagall, though many observers contend that may have been designed simply to attract supporters of Bernie Sanders' presidential campaign.
A Clinton administration with Democrat control of both the House and Senate, while extremely unlikely, would represent the largest risk to big banks and open the door to a financial transaction tax, which would drive down trading on Wall Street.
Additionally, Rep. Maxine Waters would become House Financial Services Committee chairman. The California Democrat told reporters last month that she's committed to breaking up Wells Fargo after the bank was fined $185 million by state and federal regulators for setting up phony consumer credit card and savings accounts.
The best-case scenario for the financial sector in Congress is the GOP retaining control of both chambers, and even then, having Rep. Jeb Hensarling, R-Texas, back in charge of the House Financial Services Committee isn't ideal.
One mechanism to separate commercial banking and trading could be modeled after Hensarling's Financial Choice Act, which includes a provision requiring big banks that want to trade to keep a capital buffer of at least 10% of lending assets, said Seiberg, the Cowen analyst.
Still, "investors will be relieved if Republicans keep the Senate because it will prevent Elizabeth Warren from increasing her influence," said Brian Gardner, a Washington-based analyst at brokerage Keefe Bruyette & Woods. A Republican-led banking committee would likely be chaired by Sen. Mike Crapo, R-Idaho, since current committee chair Sen. Richard Shelby, R-Ala., is required to step down under Republican term limits.
A Crapo banking panel would be less of a thorn in the side of either a Clinton or a Trump administration than one overseen by Brown.
Will Hollier, president of Hollier & Associates and Crapo's former chief of staff, said that he wouldn't expect the Idaho senator to take an adversarial role as banking committee chief. Crapo, he added, would work on legislation to provide regulatory relief for community banks, credit unions and other financial institutions and hold hearings on how the post-2008 Dodd-Frank Act affects the activities of large banks.
"He knows how to work both ways: He doesn't say, 'My way or the highway,'" Hollier said. "He's never supported breaking up the big banks. That's a political statement. How do you break them up? He is more likely to gather more information, hold hearings and focus on the effectiveness or lack of bank oversight."