Dick Bove must have found an extra dose of vigor in his morning coffee as he was reading the morning Wall Street Journal. The Rafferty Capital Markets banking analyst connects the dots between three stories in the publication and makes the observation that “banking regulations are finally meeting resistance.”

Dick Bove

Connecting the dots in three WSJ articles

The three stories center on international tensions increasing over proposed DoJ fines of BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY), the French sale of Warships to Russia and a court telling a judge in a Citigroup Inc (NYSE:C) ruling who reversed an SEC settlement said to be too lenient to the bank, and the regulatory push back is clear.

Bove says it’s about linkages. “U.S. banking regulators decided to call the French bank a criminal, fine it $10 billion, and force the firing of the top officials in the United States is shown by these two articles,” he wrote in a research note. “The French would never accept these actions but would react sharply.” Bove cites the French press reporting street demonstrations in favor of the Russian President and against the United States.  “And now the French have decided to meaningfully enhance Russia’s naval capability to attack the Ukraine, Georgia and any other nation by the sea.”

Do bank regulators drive US foreign policy?

“What is surprising is that the foreign policy decision that has created this linkage seems to have started in places like the Bank Examiner of New York State or the District Attorney’s Office in Manhattan” and not the State Department, he notes. “Bank regulators now believe that they can set U.S. foreign policy. They are experiencing some push back.”

Judge went to far against banks, says Bove

Bove then considers another “win” for regulators and banks, a higher court chastising US District Judge Jed Rakoff for requesting that a $285 million settlement between the SEC and Citigroup Inc (NYSE:C) include an admission of guilt. Rakoff had reviewed the legal issue in 2011 and concluded there was likely criminal issues that should have been addressed but were not addressed by regulators. “The job of determining whether the proposed SEC consent decree best serves the public interest, however, rests squarely with the SEC,” the three judge panel ruled in a 28 page document.

With enthusiasm Bove notes that the ruling is likely to have an impact on the SEC in a number of other sets of negotiations, alleviating the regulator from having to seek admissions of guilt in its dealing with corporations.

“Since the financial crisis in 2008 and the subsequent Great Recession, the term ‘Anything Goes’ has been applicable in the regulation of the U.S. banking industry,” Bove writes, saying it is the regulators who are without accountability not the banks. “This era may now be over. The regulators are as convinced as ever that the banking industry should be crippled. However, they are no longer being blindly supported in this belief by the legislators, the courts, and foreign governments (the press remains strongly on the regulators side).”

Then Bove gets down to numbers. “For bank investors this may lead to a monumental change in direction. The political overhang which is harming the use of bank funds for lending in the economy, and punishing bank stocks may be about to be lifted. This would be unusually positive for the industry.”