May the Banking Industry See Greater Prosperity in 2012

Banks are hoping for much greater economic activity and growth in 2012. But, based upon the latest economic statistics, we are looking at a sluggish 2.0%. Many economists are speculating that a slow movingeconomy will be attributed to new and lingering banking regulations. For example, larger banks will be required to limit their financial ties to one another under new proposed rules aimed at preventing the collapse of one big institution from triggering a larger, cascading crisis.

The net credit exposures between any two of the nation's six largest financial firms, including J.P. Morgan Chase & Co. and Goldman Sachs Group Inc., would be limited to 10% of a company's regulatory capital, under a proposed package of regulations released by the Federal Reserve on Tuesday. Most other firms covered by the rule would be subject to a 25% limit, as required by the Dodd-Frank financial-overhaul law.

The new 10% limit for the biggest firms was unanticipated by the banking industry and has the potential to scale back the capital-markets businesses of large institutions, analysts have said.

Credit restrictions are just one piece of a tougher set of regulations the Fed has drafted which apply to the nation's largest, most complex financial firms. These stricter rules are aimed to reduce the ability of any single financial giant to damage the financial system and the broader economy, and is one of several ways Dodd-Frank attempts to end the "too big to fail" phenomenon that led to huge taxpayer-funded bailouts.

It is quite apparent that the more the federal government imposes its iron hand of federal regulations upon banks and related credit companies, increased inefficiencies will negatively impact bottom-lines. This result ultimately decreases investor incentives and could also negatively impact respective stock values; hence 401k and other retirement financial vehicles.

Well, folks these trying times have resulted from a class of economic illiterates who not occupy most government agencies but elected officials who are primarily concerned about their own well-being and re-elections.

Good Luck and call us to help your financial institution see more black than red!

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