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Banks Face Mounting Regulatory, Political Pressure  

March 21, 2014
VW Staff, ValueWalk

The convergence of regulatory and political will inside the beltway is rapidly becoming insurmountable. While certain investors would argue that the ever increasing bank supervisory power is a de facto attempt to break up the largest banks, we simply view current public policy as the preferred pathway to steadily raise capital levels higher than expected over an extended period. The persistent onslaught of changing regulatory policy, federal investigations, and record settlements/penalties only serves to prolong the economic recovery and further punish shareholders and customers alike.

Proposed taxes, regulatory assessments, and persistent regulatory settlements and investigations only serve to benefit the government versus the consumer. New laws, regulatory reform, and pending rules established under the unprecedented Dodd-Frank Act have only resulted in skyrocketing risk management costs and muted economic growth. As we have seen in past economic cycles, the initial regulatory response is increasing regulation tied to the underlying problem versus reigniting the economy and growth. However, with the opaque and secular changes tied to Dodd-Frank, we believe this cycle will undoubtedly last far longer and extract more pain, but will likely result in increasing M&A activity beginning in 2015. Quite simply, skyrocketing compliance costs and the pronounced toll of the financial downturn will likely drive M&A as the acquirers further develop a better relationship with the bank supervisors, continue to build capital, and create greater operating scale.

Read more: Value Walk

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