Extra U.S. regulation may stabilize big bank profits

By Dan Wilchins

 

Planned U.S. regulatory reforms may strain profits at the biggest banks during good times, but will likely boost profits during difficult times, which could ultimately help stock valuations in the sector, experts said.Treasury Secretary Timothy Geithner disclosed elements of a plan on Thursday to change the way the U.S. regulates the financial sector. The plan calls for stronger oversight of many previously unregulated players. But Geithner also said he would like extra scrutiny of banks and other institutions whose failure could rattle the entire financial system. These “systemically important” institutions should have additional capital and risk management requirements and their own regulator, he said. “If you’re a systemically important company, you are ultimately backed by taxpayers, not just shareholders, so it makes sense to look at regulation this way,” said Karen Shaw Petrou, managing partner at research and consulting firm Federal Financial Analytics in Washington.

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