Small banks are likely the biggest beneficiaries of modest and incremental changes in bank regulation, Goldman Sachs analyst Alec Phillips writes today:

“The Treasury has released its report to the President on recommendations for revisions to financial regulation. These include changes to capital and liquidity requirements, the stress test process, Volcker rule, and mortgage regulation, among other issues.

The majority of the recommendations are incremental in nature, constituting changes in implementation of existing rules rather than wholesale repeal. Most of the proposed changes to bank capital and liquidity are possible via regulation and should eventually occur, assuming that the President nominates to key positions officials who agree with the recommendations.

Changes requiring legislation are less likely. Among the proposed changes, revisions to small bank supervision and, possibly, some mortgage rules have the best chance of enactment in our view. Most of these changes would take until at least 2018 to occur; the rulemaking process is unlikely to proceed in earnest until new appointees are in place, and while the House recently passed financial regulatory legislation, the Senate appears to be on a much slower track.”