Tags: Richard Bove | United States | big banks | global rivals

Richard Bove to Moneynews: US Needs Big Banks to Hold Off Global Competitors

By Dan Weil   |   Thursday, 09 Jan 2014 07:33 AM

Big banks are a necessity for the United States to match foreign competitors that would take our banking business away, says star bank analyst Richard Bove, vice president of Rafferty Capital Markets.

He just authored a book: "Guardians of Prosperity: Why America Needs Big Banks" and explained the arguments behind his work in an exclusive interview with Newsmax TV.

"We have to think about the fact that it's a very, very big financial market," with about $56 trillion of convertible currency in the world, Bove said.

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"So in this environment, . . . we have countries that want to expand their position at the expense of the United States," Bove said. For example, in North America five of the nine biggest banks are Canadian, he says.

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"In 2005, the Industrial Commercial Bank of China, made less money than the four biggest banks in the United States," he said. "In 2013, they will make more money than the two biggest banks put together."

And what's the significance of this?

"We are in a position where we're trying to shrink our way out, creating a vacuum in what is a growing market, letting other countries and other banks come in," Bove said. "The United States will not benefit by that."

So what should the government do to help our financial institutions compete?

"One of the most important things is they've got to reduce the capital requirements in the industry," Bove said.

"Right now, if you were to divide capital . . . (common equity), you would find that we have almost the highest level of common equity in the history of the modern banking industry in this country, which we'll say started in 1934. We have too much liquidity required of these banks."

Through risk-weighted evaluations, the government forces banks out of some markets and into others, Bove says. "We are so overregulating the industry in the United States that we're forcing transactions into the shadow banking market."

The government has to stop changing the industry's structure, Bove says. For example, "if we go forward with the elimination of Fannie Mae and Freddie Mac, which might be a desirable thing to do or not, we'll also be eliminating the 30-year fixed-rate mortgage and the 20-year fixed-rate mortgage," Bove said.

"In other words, we're doing a lot of things which are hampering the ability of the United States banks to compete at the level that foreign banks can compete."

Ultimately we're going to get another financial crisis, which will be worse than that of 2008-09, Bove says.

"But it won't be because we are under regulating the banks. It will be because we've moved transactions out of the regulated sector of the financial industry into the unregulated sectors," he said.

"We're going to take the most successful companies in the financial system, and we're going to shrink them and force them to get out of certain business lines. And we're going to take the most unsuccessful areas of the financial system, and we're going to expand them."

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