One unintended consequence of this new regulation to prevent another financial crisis is that smaller banks are no longer able to survive in this new financial world. Basel III rules tie up more capital for small lenders and lower overall returns.
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New York, NY (PRWEB) August 02, 2012
In a recent Investment Contrarians article, editor Sasha Cekerevac notes that keeping big banks safe from another financial crisis is certainly not an easy task and this means more regulation. Cekerevac believes that the problem is when regulation impairs the normal functioning of the financial system; there are unintended consequences that go beyond the big banks, he argues.
“One unintended consequence of this new regulation to prevent another financial crisis is that smaller banks are no longer able to survive in this new financial world,” observes Cekerevac. “Basel III rules tie up more capital for small lenders and lower overall returns.”
So far in 2012, the consequence of these rules has been a large number of small bank mergers, comments Cekerevac. The interesting point is that according to The Wall Street Journal, the average deal value for bank mergers in 2007 was $251 million, which set a record. In 2012, the current average deal value is just over $46.0 million. There is also a shrinking number of active smaller institutions. Cekerevac notes that according to The Wall Street Journal, there were over 4,000 banks operating with under $100 million in assets in 2002; currently, there are only approximately 2,400. Smaller institutions are unable to operate profitably when compared to the big banks, he states.
Cekerevac believes there should be a market for financial institutions in communities that are willing to lend to their neighbors. While profits aren’t as large and lucrative as big banks, they are an important support system and the backbone of this country, he points out. While the Investment Contrarians editor believes governing the big banks makes sense, he also thinks there should be some relaxation of the rules to allow banks valued under $1.0 billion more freedom to operate in their local communities.
“There’s a difference between lending to a farmer to buy equipment and trading derivatives on European debt,” notes Cekerevac. “One should be encouraged, and one shouldn’t. I think the choice is obvious.”
To see the full article and to get a real contrarian perspective on investing and the economy, visit Investment Contrarians at http://www.investmentcontrarians.com.
Investment Contrarians is a daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”
The editors of Investment Contrarians believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply. The “official” unemployment numbers do not reflect people who have given up looking for work and are thus skewed. They believe the “official” inflation numbers are also not reflective of today’s reality of rising prices.
After a 25- to 30-year down cycle in interest rates, the Investment Contrarians editors expect rapid inflation caused by huge government debt and money printing will eventually start us on a new cycle of rising interest rates.
Investment Contrarians provides unbiased research. They are independent analysts who love to research and comment on the economy and investing. The e-newsletter’s parent company, Lombardi Publishing Corporation, has been in business since 1986. Combined, their economists and analysts have over 100 years of investment experience.
Find out where Investment Contrarians editors see the risks and opportunities for investors in 2012 at http://www.investmentcontrarians.com.