Now that the vote to close off debate on the huge financial regulation bill has passed by 60-40, voting on the bill will come very soon, and that raises concerns from banks like Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) on whether or not the inclusion of the provision from Democratic Senator Blanche Lincoln will be passed with the bill, which would force banks to spin off their swaps desks.
Federal Deposit Insurance Corp. chairman Sheila Bair has already weighed in on the matter, telling politicians they need to “really think hard” about allowing that to become law, as it could have a devastating effect on revenue and earnings, while actually probably increasing, rather than decreasing risk.
When you add up all the regulations already in place, having taken away a lot of the fees which had helped banks to be profitable, if you add this to it, you do have to wonder if lawmakers are going to destroy, rather than help the financial institutions.
So far the news seems to be good in regard to this provision, as it seems there is enough opposition to keeping it in the final bill, although you can’t count on anything until it is finalized.
While there was definitely a need to look over the banking industry and make some changes, the numerous amendments to this bill could, taken together, be as devastating, and probably more so, than forcing banks to spin off the swap desks.
The problem is this is an election years and the politicians are already under fire for their outrageous spending and bailouts, and they think by looking tough on the banking industry they’ll win over voters. Unfortunately it could very easily end up backfiring on them, as the usual unintended consequences always emerge after the fact, and that will be the case here, depending on what the final bill looks like and what’s included in it.
This is part of the reason banking stocks have been hit hard, as the uncertainty of when it is going to pass, along with the fears on how it will affect the banking industry, has investors on edge, along with the many other factors weighing on the sector.
It’s going to be a rough and uneven ride for financial institutions in America for some time to come.