Brave New World of Financial Legislation
We expect lower bank profitability but a more stable financial system.
There is still much to be written about and finalized in the specifics of the new United States financial legislation. Since over 200 new rules are expected, which may take up to five years to implement, we think the ultimate implications remain uncertain and may vary widely from one institution to another. However, we think the publication of the broader rules is a good opportunity to size things up a bit, at least on an elevated level. Here we provide some detail regarding the main points of the new legislation and an idea of the potential impact to some banks in our coverage universe. All figures are estimates and come from various sources, including earnings calls, company presentations, and management comments. The numbers presented may not be uniform across firms. Despite this, we think they clearly show that the regulations seem to affect larger banks much more dramatically than they do small banks.
We're particularly worried about how the legislation will impact companies like Bank of America (BAC) who will be affected from multiple angles, like size (deposit insurance), trading activities (Volker rule), debit card issuance (interchange fees), and checking account income (overdraft fees). Other smaller players should also feel the impact given their reliance on a particular field, like TCF Financial (TCB) (overdraft and interchange fees) and Fifth Third (FITB) (capital restrictions). In our view, small community banks like Cullen/Frost Bankers (CFR) will not suffer nearly as much.
Maclovio Pina has a position in the following securities mentioned above: USB. Find out about Morningstar’s editorial policies.