Financial stocks are among the biggest beneficiaries in the pro-business Donald Trump administration so far, but many on Wall Street are wondering how a tax cut can specifically impact bank stocks.
Fred Cannon, executive vice president of Keefe, Bruyette and Woods, an investment banking firm, said a tax cut would impact big banks' bottom lines.
"Tax reform, as proposed, can be a very good thing," Cannon told CNBC's "Closing Bell" on Tuesday. "I mean, if we look across the board, financials tend to be high taxpayers and as a result, that tax cut is going to fall to the bottom line of big banks and to many financials."
Jeffery Harte, a principal at Sandler O'Neill who also spoke to CNBC, singled out U.S. centric banks like Bank of America, Morgan Stanley, and JP Morgan as the ones that would benefit the most from a tax cut.
Cannon said he believes tax cuts would free up extra capital that could be returned, but also offer a few indirect benefits as well.
"A lower tax rate is going to make investment more profitable. It would push up capital expenditure, improve economic growth, and you'd see loan growth pick up, which is good for the capital market," Cannon said.
And while Cannon believes a revived bank tax wouldn't be out of the picture, Harte said he believes a bank tax would go against the Trump administration's pro-business attitude.
"I think especially the way Washington is now between Trump and the Republican control of both houses, it's a more business friendly environment and taxing banks directly would be anti-business," Hartes said. "I think the attitude is to get more capital put to work in the economy to get more people investing, and they would probably go the opposite way [with a bank tax]."
Disclosure: Keefe, Bruyette and Woods expects to receive or seek compensation for investment banking services from Bank of America, Citi, JP Morgan, Morgan Stanley, Goldman Sachs, and Wells Fargo. Sandler O'Neill expects to receive or seek compensation from Bank of America, Citi, JP Morgan, Bank of New York Mellon, Northern Trust, Goldman Sachs, Morgan Stanley and State Street.