(Reuters) - The banking industry is expected to win big as former President Donald Trump returns to the White House, ushering in Republican regulators who are expected to ease capital rules and merger approvals, industry experts and analysts said.

The President-elect's picks are likely to further dilute the contentious Basel III endgame proposal aimed at requiring big lenders to hold more capital to safeguard against soured loans.

While banks have already won major concessions on that proposal which they say will crimp lending and hurt the economy, the latest draft would still increase capital requirements by around 9% for the largest lenders, according to a top Fed official.

"The Basel endgame rule could be completely dead," said Gene Ludwig, a former top bank regulator who advises financial institutions as CEO of Ludwig Advisors.

The regulatory shift could bring some relief to investors after a year in which some bank stocks were weighed down by concerns over deteriorating loans.

First unveiled months after the collapse of three regional lenders last year, the Basel proposal faced intense pushback and an unprecedented lobbying campaign from big banks, which argued the rules would erode their competitive edge.

The Federal Reserve agreed to water down the proposal in September, when Vice Chair for Supervision Michael Barr said the regulator would overhaul and re-issue the rules later.

Other planned rules requiring banks to hold more debt, as well as changes to liquidity regulations, may also be in doubt.

"The outlook for the banking sector is more encouraging under Trump," said Dan Coatsworth, investment analyst at AJ Bell. "Banks would have fewer constraints and be able to use more cash for lending or share buybacks."

The U.S. central bank declined comment.

The KBW Banks Index, which tracks large-cap banks, fell 1.5% after closing almost 11% higher on Wednesday, while an index tracking regional lenders dipped 1.5% a day after a 13.5% surge.

REGULATOR TURNOVER

As Trump installs new regulators at key agencies, his picks could have an immediate and seismic effect on a banking industry more used to a slower pace of change, according to a financial technology executive who declined to be identified discussing the personnel changes.

"This is like an earthquake for bank M&A and bank regulatory policy," said Ed Mills, an analyst at Raymond James, who expected bank deals to be announced within weeks.

The aggressive financial regulators of the Biden era, including Gary Gensler at the U.S. Securities and Exchange Commission, Lina Khan of the Federal Trade Commission and Rohit Chopra at the Consumer Financial Protection Bureau, are also likely to be replaced by more business-friendly agency heads.

But Meg Tahyar, head of the financial institutions group at law firm Davis Polk, tempered expectations for a radical change.

"There will be changes of personnel at the top level and there will be more M&A, but the intensity of supervision and the focus on junk fees is unlikely to change much," she said.

On Wednesday, midsize bank stocks were buoyed by expectations that their capital requirements would be eased, said Lazard chief market strategist Ronald Temple.

The potential for less-stringent antitrust policy also bolstered shares of Discover Financial and Capital One Financial ( COF ), he said. Both are awaiting the green light for their $35.3 billion deal.

"The M&A landscape for banks may benefit with shorter approval timeframes," Morningstar DBRS wrote in a note.

Many top industry executives have called for some consolidation among banks in the U.S., which is home to more than 4,600 lenders. Dealmaking would allow smaller banks to compete more effectively against their larger peers.

"We can at least put M&A back into the discussion; whereas it has been largely nonexistent over the past few years on a punitive regulatory backdrop," Scott Siefers, a banking analyst at Piper Sandler, wrote in a report.

Fifth Third Bancorp ( FITB ), Huntington Bancshares ( HBAN ) and PNC Financial may be more interested in pursuing M&As, Siefers said.

The banks did not immediately respond to requests for comment.

Despite the ebullient mood, potential policy uncertainty, trade wars, protectionism and inflationary pressures under Trump could also pose some challenges to dealmaking, some bankers said.

(Reporting by Niket Nishant and Manya Saini in Bengaluru, Nupur Anand in New York; Additional reporting by Tatiana Bautzer and Saeed Azhar; Editing by Noor Zainab Hussain, Lananh Nguyen and Arun Koyyur)