Tags: Bove | Fed | bank | capital

Dick Bove: Fed 'Forcing Bank Transactions Into Shadow Market'

By    |   Monday, 15 December 2014 12:24 PM

The Federal Reserve is requiring the eight biggest U.S. banks to increase their capital by a total of $21 billion to prevent another financial crisis, and that could lead to capital flight, branch closings and job losses, analysts tell the New York Post.

JPMorgan Chase will be responsible for $20 billion of the increase. The other seven banks are Citigroup, Bank of America, Wells Fargo, Bank of New York Mellon, State Street, Goldman Sachs and Morgan Stanley.

The capital increases would mostly affect the banks' big customers, such as hedge funds and money managers.

The idea is for banks to have adequate liquidity in case of turmoil in the financial system.

"The Fed is trying to make sure there is not the type of systemic risk we faced during the crisis, when the largest institutions in many cases were still solvent but were not liquid," Oliver Sommer, partner at consulting firm The River Group, tells the Post.

Ace bank analyst Dick Bove of Rafferty Capital Market tells the paper that the rule change will "force bank transactions into the shadow market, where there are no capital requirements. This market includes master limited partnerships, REITs [real estate investment trusts], payday loan companies, pawn shops and non-bank broker-dealers, like Jefferies and Raymond James."

The capital increases could spell trouble for big banks, says Mike Mayo, a bank analyst for brokerage firm CLSA "The penalty for being big and complex might be going up," he told The New York Times.

Shareholders of large banks count on their earnings to total at least 10 percent of capital. "If it is not in excess of that, there will be major questions about the business model," he said.

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Finance
The Federal Reserve is requiring the eight biggest U.S. banks to increase their capital by a total of $21 billion to prevent another financial crisis, and that could lead to capital flight, branch closings and job losses, analysts tell the New York Post.
Bove, Fed, bank, capital
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2014-24-15
Monday, 15 December 2014 12:24 PM
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