Banking on Change (Part 2)

What’s changing for banks?

The easiest changes to see are regulatory. Regulators have massive influence on how banks do business. From standards on loans to borrowing to capital, the overseers have been raising the bar.

And it needed to be raised. One of the causes of the Financial Crisis was lenient regulation. Regulators assumed that market discipline would keep the biggest institutions in line—that firms that mark-to-market every day didn’t need as much of a safety net. Well that didn’t work out so well. The first firms to fail were trading institutions: New Century Mortgage, then Bear Stearns’ hedge funds, then Bear itself. The failures and bailouts ballooned after that.

Source: BBC

So regulators have increased capital standards and prohibited certain practices.

Most recently they have proposed a capital surcharge for big institutions that rely heavily on wholesale funding. All these regulations cost money—over $70 billion so far, by one estimate—and restrict credit growth just when the economy needs it. But the Financial Crisis showed that lax standards have a cost as well. To borrow a phrase, if you think bank regulation is expensive, just try the opposite.

It’s been said that generals tend to fight the last war. Let’s hope that the new regulations fix some of the flaws in our banking system—before they become fatal.


Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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By | 2017-07-17T12:34:15+00:00 September 9th, 2014|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
Leave a comment if you have any questions—I read them all!
– And Follow me on Twitter @GlobalMarketUpd

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