Big Banks and Rising Profits off of Deregulation

Big U.S. banks would have even higher profits if there’s added deregulation to the financial sector. The number given by Bloomberg is $27 billion in added profits, which is over 1 percent of U.S. after tax corporate profits. To destabilize the financial industry more with deregulation and put the entire economy at risk of collapsing again is absurd, particularly for such a relatively small profit level. The last economic crash resulted in millions of people losing jobs, trillions being drained in savings and pensions, and a lasting economic weakness that permeates many sectors of life. Showing the recklessness of greed, the big banks are lobbying for increased deregulation anyway though.

The deregulation winds blowing through Washington could add $27 billion of gross profit at the six largest U.S. banks, lifting their annual pretax income by about 20 percent.

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The Treasury has also proposed easing compliance requirements for the Volcker Rule, which restrains banks’ trading activity, and the annual stress tests. Because the Volcker Rule was part of the 2010 Dodd-Frank Act, its main tenets can’t be changed by regulatory fiat. But tweaks in how banks are required to comply can be made.

Most banks don’t disclose how much they spend to comply with regulations. Gerard Cassidy, an analyst at Royal Bank of Canada, estimates that the administration’s proposed changes could cut post-crisis compliance costs by about 30 percent for big banks.

While banks have welcomed the proposed changes, some analysts worry that risk-taking might creep back to dangerous levels.

“Deregulation might add some icing to the cake in good times,” said David Hendler, founder of Viola Risk Advisors and an analyst who’s followed the industry for more than three decades. “But it will also add blood in the water in bad times.”