Big Banks and “The Number”
By Jim McTague
A government watchdog agency is calculating the size of the implicit regulatory subsidy enjoyed by banks deemed too big to fail. It could lead to legislation requiring the banks to bolster their capital cushions. If you are wagering part of your portfolio on the country’s biggest financial holding companies, it’s time to brace for “The Number.” The Number will be a game changer — one that threatens to take a big bite out of big banks’ profits. Brown and Vitter will use The Number to promote legislation requiring the big banks to significantly increase their capital cushions, which are mostly made up of equity. Of course, the bill is hardly a slam-dunk; similar measures have failed every year since 2010. The real danger for investors lies elsewhere: The Number could be used in budget negotiations between Democrats and Republicans later this year to extract “user fees” from the largest bank and non-bank financial holding companies, according to Karen Shaw Petrou, co-founder and managing partner of Federal Financial Analytics. The firm advises financial executives about legislative and regulatory risks. Vitter already has endorsed the notion of exacting user fees.