Bank analyst Richard Bove approves of the Bush administration's plan to buy up to $700 billion of troubled mortgage assets from major financial institutions.
But, he says, it will still take two years for the banking industry to recover.
Bove, who works for Ladenburg Thalmann, told Bloomberg News that the government plan isn't big enough to erase all of the industry's woes.
"It's unrealistic to assume the Treasury Department will go out and buy all the bad loans from Bank of America, for example," he says.
"I doubt Congress would allow that. And even if it would, the government would demand a huge portion of Bank of America's equity, and Bank of America would refuse."
Small banks are likely to be the biggest beneficiaries of the new plan, Bove says.
"Banks that are on the verge of failure and have already failed — primarily smaller banks — will now have a mechanism for getting rid of their problem assets."
Despite that assistance, the banking industry is still headed for consolidation, Bove says.
"Clearly it's the policy of the U.S. government to stimulate the creation of large banks and get rid of small banks."
But that doesn't mean the industry is concentrated in too few hands, he says.
"After a couple years, when this settles down and the financial industry stabilizes, you will see hundreds of small firms pop up, led by people who couldn't stand working in a large bureaucracy."
"I don't think financial innovation is dead."
PIMCO Chief Investment Officer Bill Gross told Bloomberg that once the financial crisis ebbs, investors should consider selling Treasury bonds and buying agency and corporate bonds instead.
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