Rafferty Capital Markets’ Richard X. Bove comments on a big news day for the US banking industry, which he sees as coming under fire by the government, backed a public with no love for big banking, a situation he feels will ultimately harm the economy.

Retail Banking

The News

Today’s press reports indicate:

  • The Republicans may want to put an excess tax on big banks with over $500 billion in assets.
  • Morgan Stanley (NYSE:MS) is to pay $275 million in fines for supposed mortgage infractions.
  • Bank of America Corp (NYSE:BAC) will increase its legal reserves by $1.0 billion to deal with new thrusts against the company in the mortgage and foreign exchange sectors.
  • Credit Suisse Group AG (ADR) (NYSE:CS) is about to be hauled in front of the Senate for issues that arose in 2008 and a claim that its accounting is irregular in the private banking division.
  • Discover Financial Services (NYSE:DFS) is being investigated by the Consumer Financial Protection Bureau for issues related to student loans.
  • New York State continues to sign agreements that will eliminate analysts from doing surveys in various areas. The State believes that analysts should be punished if they do their jobs and awarded if they do nothing.

All this is being reported in one day. The point here is that the government is pursuing this tack because it sees no reason not to. It does not believe that there are any consequences to its actions. Plus, it is supported by the press in its continued attacks against banking.

Consequences

Unfortunately, there are consequences:

  • Originating residential mortgages in this country is now a money losing business for banks and this will, at some point, restrict the flow of funds into housing.
  • Low income households are now unlikely to ever get the funds to buy a new house.
  • Free checking is gone.
  • Prices on virtually every banking service have risen.
  • Small businesses lending is down relative to where it was 6 years ago in the banking system.
  • Unregulated financial companies are rapidly gaining in market share relative to regulated banking companies increasing risk in the system.
  • The Federal Reserve is sitting on $2.5 trillion in bank deposits that should have been used to make loans.
  • The United States continues to lose ground in the international financial markets while the Chinese gain in stature.

No Oversight

The attacks will continue as long as the public remains convinced that these attacks are good for America. Americans are also willing to give up the natural right of citizens in a democracy to control legislation. They have set up a Consumer Financial Protection Bureau does not have to answer to Congress, the President, a Board of Directors, or an oversight panel. The czar who runs it has no controls over his activities. Congress has abdicated the rights of the American citizens to control the activities of an agency that impacts every aspect of consumer finance in the nation.

The desire to harm the banks is so great in this country that there are no limits as to what the Congress and regulators will do to harm the American public and tear down democracy to get what they want. And, what they want is harming everyone.