Superstar bank analyst Dick Bove says the stock market may crash if White House bank regulation plans become law.
"We all agree the market is driven by money. If the money supply increases, the money gets into the market, and stock prices go up," the Rochdale Securities financial strategist says.
He said investors recently saw "a shot at both of the areas where money creation occurs in the United States."
The first shot was the Senate’s threat to reject Ben Bernanke as Federal Reserve chairman, he told CNBC.
The second shot was President Obama’s bank regulation plan, which includes a prohibition against banks owning private equity and hedge funds: the Volcker Rule.
"The Volcker Rule does exactly the same thing" as tightening monetary policy, Bove says.
"If you want to shrink the size of banks, and you want to only use deposits for funding loans, you're going to strip the ability of the banks to generate money."
Bottom line: "If you're going to cripple the two sectors which would provide you with money, you will cripple the market," Bove said.
Others agree with him.
“Anything that restricts (bank size) runs the risk of hurting the international competitive position,” Alan Gayle, senior investment strategist for RidgeWorth Investments, told The New York Times.
“These rule changes could restrict the long-term growth in financials.”
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