Dick Bove to Moneynews: US Banks Must Get Bigger to Compete With China

Friday, 05 Apr 2013 07:52 AM

By Glenn J. Kalinoski and David Nelson

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Banks in the United States must get bigger and the government must be prepared to back them up, said banking analyst Dick Bove.

“The U.S. is … the greatest power in the global financial markets in the world and has been for multiple decades, and it’s there because it has a huge banking system, huge capital markets, liquidity, depth, etc.,” Bove told Newsmax TV in an exclusive interview.

The vice president of research at Rafferty Capital Markets said the U.S. position is coming under attack as the Chinese have “explicitly stated” they want to surpass the United States.

Watch our exclusive video. Story continues below.



Editor's Note: A full, unedited version of this interview is available exclusively to Financial Braintrust Alliance subscribers. Visit www.fbtalliance.com for more information and to sign up.

“There are now 10,000 institutions around the world that will handle transactions in yuan, which is Chinese currency, as opposed to the dollar,” he said. “They’re moving aggressively to push us aside. We have been taking the position that they should push us aside. We’re going to shrink.”

Bove went on to describe as “simply pathetic” the profits of the four largest U.S. banks when compared to their Chinese counterparts.

“We’re willing to give up our position as a dominant country in the financial markets globally to the Chinese because all we want to do is shrink and hide and run away and have the (savings and loans) in Dubuque compete with the Industrial Commercial Bank of China, which makes $38 billion a year,” he said. “It’s virtually un-American.”

Editor’s Note: Put the World’s Top Financial Minds to Work for You

When asked about the crisis of 2008 and the concept of too big to fail, and specifically if American taxpayers may be asked once again for a bailout, Bove’s answer was yes.

“That is the price the U.S. has to pay if it chooses to be the strongest … country in the global financial markets,” he said. “If the U.S. is unwilling to pay that price, then it can shrink itself back into having the safest and soundest banks in the world, but those banks will be lending virtually no money and no major corporation will be able to do business with them.”

Under such a scenario, Bove said the United States would join Spain, France and Britain as countries that were global financial powers, but are no longer.

“The U.S. taxpayer didn’t do so badly as a result of stepping up and assisting the banks,” he said. “The U.S. taxpayer walked away with hundreds of billions of dollars in profit.”

Bove said that, in addition to profits from the The Troubled Asset Relief Program (TARP), the real benefit to the taxpayer is in profits of the Federal Reserve, which he said is now normally making $55 billion to $70 billion in annual profits.

“The American taxpayer benefitted monetarily by stepping up, but it benefited far more than that by saving the financial system,” he said.

“Are they going to have to do that in the future? You better believe it. You cannot eliminate economic cycles. You cannot eliminate financial collapses, and the U.S. government has got to be ready to step up and assist when those things occur.”

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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