One year after bank runs threatened the financial system, the Federal Reserve and other regulators are preparing to unveil new rules aimed at preventing future meltdowns, focusing on liquidity and a direct response to issues that became obvious during the 2023 crisis. This comes on top of proposed regulations causing tension for big banks, with the industry criticizing the already-proposed rules known as "Basel III Endgame." JPMorgan Chase's CEO, Jamie Dimon, has complained that regulators have not addressed the problems that led to the 2023 midsize bank failures and that the Basel capital proposal is targeting larger institutions not central to last spring's meltdown.
Analysts at RBC Capital Market believe that bank stocks could thrive next year if there is a replay of 1995, when they surged 54%. The key factors for this potential growth include the end of the Fed rate hike cycle and a soft landing for the economy. Despite solid earnings and higher loan-loss reserves, banks are currently trading at low valuations. RBC recommends Bank of America, Fifth Third, Huntington Bancshares, KeyCorp, M&T, PNC Financial Services Group, Truist Financial, Valley National, Western Alliance Bancorp, Webster Financial, and Wintrust Financial as the banks to own. However, some investors remain cautious and would like to see a hard landing before getting involved in bank stocks.
New proposals to raise capital requirements at Wall Street banks could have negative consequences for American homeowners, warns banking analyst Meredith Whitney. She believes that these rules will make it harder for small businesses and individuals to access capital, potentially leading to a 30% increase in mortgage rates. Whitney also highlights the risk of a "silver tsunami" as baby boomers downsize, which could cause home prices to decline. JPMorgan CEO Jamie Dimon echoes these concerns, stating that the new requirements could make mortgages and loans more expensive, while also pushing up consumer prices and retirement savings costs. Whitney further cautions that the proposal may drive more banking activity to non-regulated lenders, making lending even more expensive.
Wall Street CEOs, including JPMorgan's Jamie Dimon and Goldman Sachs' David Solomon, warned lawmakers that proposed financial regulations could harm lending and potentially damage the US economy. They argued that stricter legislation, such as increasing capital requirements for banks, could create risk and hurt markets. The CEOs expressed concerns about the potential adverse impact on various products and services, including green lending, commodities hedging, pension plan profits, and US Treasury market liquidity. The proposed global banking standards known as Basel III Endgame were also criticized for their negative impact on capital markets functioning. Some lawmakers expressed skepticism about the banks' motivations, while others warned of the devastating impact on small business owners.
