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Banks are about to get a huge cash windfall thanks to Trump

Changes in banking regulations could result in a big windfall for the industry, much of which would make its way into investors' pockets, according to a Goldman Sachs analysis.

In a best-case scenario, slashed regulations would result in as much as $218 billion in excess capital which "could either be returned to shareholders or reinvested in the business," Goldman said in a report for clients this week.

That excess cash would result from likely reduced requirements for banks to retain buffers against emergencies. Reforms under the Dodd-Frank law in 2011 sought to make sure the industry doesn't suffer another crisis like the one that began 10 years ago and nearly capsized the global economy. The current level of excess capital is $131 billion.

President Donald Trump has made easing banking restrictions a key part of his platform. He's specifically looking to increase bank lending. Bank credit is up 38 percent, and commercial and industrial loans are up 36 percent since the beginning of 2010, but Trump believes lending is expanding too slowly and businesses are having trouble accessing credit.

While the White House has yet to lay out specifics about what regulations will look like, Goldman believes they'll center around easing stress test requirements, rolling back the way banks have to count risk assets, and bringing capital requirements imposed by the U.S. Federal Reserve more in line with other organizations such as the international Financial Stability Board.

Changing the stress test rules alone would allow banks to return more capital to investors.

In the "blue sky" scenario where the regulatory changes unfold in the way most beneficial to banks, Goldman envisions banks boosting dividends by 45 percent on average through 2018. That compares with expected dividend increases of 11 percent for the entire S&P 500.

In addition to the increased dividends, bank earnings could gain an additional 28 percent upside from the 2018 estimates Goldman currently places on the sector, the report said.

The analysis does not specify when the money would be realized, though it's largely dependent on the pace of regulatory rollbacks in Congress.

Goldman's analysts figure that while banks have become an easy political target in the post-crisis years, negotiations about rolling back regulations will include talk that banks have braced themselves against financial crisis-type scenarios and are ready to return to a less restrictive environment.

"Given the significant strengthening of capital, liquidity and reporting and stress testing since the financial crisis, it can be argued that there are already sufficient checks in place to ensure that banks are not taking excessive risk in their market-making operations," the analysts said.

Bank stocks have been on fire since Trump's election, with the KBW Nasdaq Bank Index up about 28 percent. The sector has led a broader rally that has seen the S&P 500 rise nearly 11 percent during the same period.

Like many other analysts, Goldman does not believe the Dodd-Frank reforms will be rolled back in their entirety.

However, it sees individual portions getting curtailed substantially.