Bold Predictions, Part I – Dismantling Empires

“In 2011, we saw the end of the beginning of the Basel III capital, resolution and liquidity rules – now, the battle isn’t over what’s in them, but rather how they will be implemented in the U.S. In 2012, a new issue will be added to the already-formidable mix of industry challenges: the beginning of the end of highly-integrated, inter-connected and diversified holding companies. Regulators will now move on to ring-fence different business lines, essentially corralling traditional banking in fields far from more innovative activities like investment advice and wholesale financial services. This will undermine the operational, funding and capital efficiencies that are predicate strategic assumptions in diversified financial firms, and regulators can force this structural rewrite under current rules. Thus, Congressional confusion in 2012 is no impediment to far-reaching regulatory demand.”

Karen Shaw Petrou, Federal Financial Analytics