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Cramer: How Trump's new bank regulator will turn banks into money magnets

  • "Mad Money" host Jim Cramer explains why Randal Quarles' anti-regulation standing will help institutional banks like JPMorgan make more money.
  • As the vice chairman for supervision at the Federal Reserve, Quarles could exempt big banks from some harsh regulations that could be harming profits, Cramer says.

Nobody wants another financial crisis, but CNBC's Jim Cramer knows that the bank cohort has been utterly squeezed by the strict regulations placed on it during the Obama administration.

"The industry was subject to stringent regulations that made riskier banking impossible, while dividend growth was forbidden without the approval of the Federal Reserve," the "Mad Money" host said.

But one Fed newcomer could change that, Cramer argued. President Donald Trump's nominee for the central bank's board, Randal Quarles, will take over as the Fed's vice chair of supervision.

"And while you can argue about the merits of deregulation, one thing is clear: Quarles is going to be fabulous for those of you who own bank stocks," Cramer said.

Quarles' confirmation hearing at the Senate laid plain the policymaker's positions. Quarles told Congress that Dodd-Frank, the financial legislation enacted in response to the 2008 recession, "undoubtedly" needs "refinements."

Federal stress tests, which determine if a given bank is able to withstand financial collapse, should be more "transparent," he said.

Moreover, the former Bush administration under-secretary for domestic finance worked in private equity for years with specific exposure to long-term private businesses, something Cramer said would give him better insight into the workings of small businesses.

"Why does all of this matter? Let's put it together," Cramer said. "If the banks no longer have to guess what the examiners want from them in the stress tests, if they're allowed to increase their dividends as they think prudent, and if the Fed gives us a normal series of rate hikes, they'll make investors fortunes."

With every interest rate hike, banks' dividends, stock buybacks and earnings per share will rise, and provided all goes accordingly, money managers are likely to flock to the bank stocks as they rise in tandem, Cramer explained.

"If the banks get another leg up, I bet we'll see a nice pop in the broader market. These stocks are gold-star leaders," the "Mad Money" host said. "We'll know shortly: if JPMorgan and charitable trust fave Citi[group] behave well after they report on Thursday, they'll be magnets for money and a whole new group will be ready to roar."

WATCH: Cramer opines on new Fed bank regulator

Disclosure: Cramer's charitable trust owns shares of Citigroup.

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