Bove: Increased Financial Regulations Could Cause New Crisis

Tuesday, 21 Aug 2012 08:39 AM

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Increased regulations, many of which are from the Dodd-Frank financial-reform measure, are making it harder on banks and consumers, but easier on the financing system that helped create the 2008 credit crisis, says Dick Bove, vice president of equity research at Rochdale Securities.

Because of the regulations, traditional banks are being restrained in providing some services, including check cashing, payday loans, wire transfers, prepaid bank cards and mortgages with “graduated payment schedules,” Bove notes, all services generally associated with lower-income customers.

“So, who is supposed to provide the funds inside the regulated banking system to buy these loans? Clearly, the answer is the shadow banking market,” he writes in a note, according to CNBC. “Unregulated mortgage companies are likely to spring back into business. They will have their loans packaged by unregulated securities firms.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

“The government is virtually screaming for this to happen with its new rules. By driving consumers into the grey and shadow banking markets, it will drive the cost of their financial transactions higher,” says Bove. “Moreover, it sets the stage for the next financial crisis.

“It has been my strong belief that the United States government and its agencies have embarked upon a series of actions that have created disarray in every sector of the consumer financial markets.”

Banks are typically no longer offering free checking accounts and either charge service fees or have high-balance requirements, Bove notes.

“In this way they offset lost revenues from those areas where the government has stepped into the industry,” he says. “Now everyone gets to pay for the mistakes of a relative few.”

The regulations have failed to achieve their stated objectives, he says.

“Make no mistake, consumers are paying more for less. Winners will emerge in this period of disarray.”

According to a new study by Bankrates.com, checking accounts have gotten more expensive for customers in 2012 relative to 2011, with monthly maintenance, ATM and overdraft fees reaching new highs.

Presumed Republican presidential candidate Mitt Romney has vowed to repeal the Dodd-Frank Act if voted into office. In addition, the Republican-controlled House Financial Services Committee has been working on taking apart the Dodd-Frank financial-reform law.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation


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