America's banking system is about to
be "Canadian-ized." Early investors stand to make absolute fortunes
in the process.
When Congress passed the Dodd-Frank
Wall Street Reform and Consumer Protection Act we forecasted some major changes
to the banking system.
The massive law of more than 1,000
pages contained all sorts of rules and changes.
It has already spawned 14,000 pages of new banking regulations. And CNBC says there are still a "slew of rules that need to be written."
It has already spawned 14,000 pages of new banking regulations. And CNBC says there are still a "slew of rules that need to be written."
Will these regulations protect the
banking system?
We doubt they will protect the
banking system from the next crisis. Only the government backstop will.
They will, however, protect a lot of
them from something they fear even more.
That's competition.
The top donors to both Sen. Dodd and
Rep. Frank were large banks and financial institutions. No surprise since they
represented Connecticut and Massachusetts respectively.
And it's becoming perfectly clear
the donors got what they paid for - more regulations.
Now, at first thought, regulations
are supposed to be good for consumers and bad for businesses. They are in many
respects. But they make their biggest market on the smallest companies in an
industry without the massive infrastructure and number of personnel to meet
them.
That's why over time it becomes
inevitable they eventually stand really only to protect established players in
the industry.
It's called regulatory capture when
the regulatees take over as the regulators. It's why there's a "revolving
door" between Washington and so many big businesses.
It's so those being regulated can
control the regulation. And in time regulate away their competition.
Well, that's exactly what's
happening to America's banking system.
Normally, a growing industry would
bring more competition. But largely due to extremely high regulations, there
are very few new banks getting founded. Many more banks are getting taken over,
merged together, or run out of business.
This trend will only continue until
the U.S. looks like Canada. That's a country where they have had far greater
banking regulation and it has resulted in five major banks running the whole
country's financial system.
In a few years there will be far
fewer banks than there are today. There will be less competition. Prices will
be higher for consumers and profit margins will be fatter for the banks.
As the U.S. banking system works
towards this, there will be a growing pie of business and a greater share for
each bank that remains.
Buy the big banks and go along for
the ride. There's a 20-year bull market ahead for big bank stocks and safe, consistent
dividend income streams to be paid along the way.
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