Jeremy Glaser: Hi. I'm Jeremy Glaser with Morningstar.com. And, I'm here today with Jim Sinegal, bank analyst. Hi Jim. Thanks for joining me.
Jim Sinegal: Hi Jeremy. Good to be here.
Glaser: So, the big news that came out today was Obama finally unveiled his plan for revamping the regulatory agencies that oversee the financial industry in the United States. Can you just give us your thoughts on the big overview of the big changes that he's making.
Sinegal: Well, on the surface it looks like a pretty good plan and nothing too unexpected. There are going to be some more consumer protections in the plan. There will be some more oversight of large systemically important financial firms, which is in my opinion the most important aspect of the plan.
Glaser: So, which companies do you think are going to be the most impacted by these changes?
Sinegal: Sure. The largest banks, the banks that are too big to fail, the ones that have been causing all of the problems. We had Lehman Brothers, Bear Sterns, Citigroup, that's till in existence. Those large interconnected firms are going to be the ones that are most effected.
Glaser: So, if this new regulatory regime, was in place, say, last fall when Bear Sterns and Lehman were going under, the government would have had more power just to completely take it over and not have to worry about the companies going into Chapter 11 or kind of forcing other banks to buy them in distress?
Sinegal: Exactly. That's the idea.
Glaser: So, either maybe some of the smaller regional banks are therefore not going to feel the same impact of this type of regulation?
Sinegal: No. No, certainly not. There are some proposals to overhaul regulation in general. They might have to deal with different regulators in the future. Capital standards are going to be a little bit higher. But nothing too surprising and nothing that should change their business model too much.
Glaser: So, do you think that given that they're probably not going to be as impacted by this, there's any of those smaller banks might be attractive investments right now or that people might want to take a closer look at?
Sinegal: Sure, sure. After the rally, we lost a lot of our five-star banks. But we still have some banks and some small banks, like Valley National Bank in New York, that are still rated at five-stars and we think should get through with no problem regardless of changes in regulation.
Glaser: Yeah. So, do you think that there's any impact on the average everyday consumer? Are they going to see any big changes because of these agencies reshuffling who has responsibility for different aspects? Or do you think it's going to be more of the same going forward?
Sinegal: The average consumer shouldn't see too much of a difference. It depends on the specifics as far as the consumer protection plans that are enacted. Of course no one, the banks nor the consumers, want to make loans that no one can pay back. But exactly how to prevent that is difficult, as we've seen in the last couple of years.
Glaser: So, overall you think it's a pretty good plan, but its major impact is going to be on some of the larger financial institutions. But some of the smaller players might not be as hurt, and they're ones that people might want to look at. There might be some attractive valuations there.
Sinegal: Yeah. That's definitely a good summary.
Glaser: OK, great. Well, thanks so much for talking with me today, Jim.
Sinegal: Thank you for having me.
Glaser: I'm Jeremy Glaser with Morningstar.com. Thanks for watching.