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Unintended Consequence Of FinReg : Banks Look Abroad - by : Liz Moyer is a Senior Writer at Forbes

jeudi 15 juillet 2010 par William Toussaint

A day before the Senate is expected to set a final vote on financial regulatory reform, bankers complained bitterly about the bill’s unintended consequences.

“The Dodd-Frank Wall Street Reform and Consumer Protection Act is unprecedented in scope and will usher in a new era of financial services regulation,” said American Bankers Association President Ed Yingling in a statement accompanying a detailed report on the bill’s contents and its ramifications for the industry. “Unfortunately, legislators took a ‘while-we’re-at-it’ approach during the bill’s journey, imposing unrelated new restrictions on traditional banks that were more victim than villain in the financial crisis.”

It’s to be expected that bankers won’t like new constraints on their business. It’s also to be expected that they will take the time between the passage of the bill and its implementation to shift their businesses in directions that the new regulations can’t touch.

They are looking abroad, for starters. After the 2008 bailout, the biggest banks spent the last year dusting themselves off, shoring up their capital and finding new areas of growth.

Citigroup already derives half of its profits from emerging markets overseas and sees more money coming from those regions in the future. So while it’s scaling back its consumer lending in the United States — Citi is running off a huge chunk of consumer loan portfolios to focus on the urban affluent segment — the bank is looking for new consumer business abroad.

“Looking forward the emerging market’s revenue pool is expected to grow over twice as fast as developed markets, representing the majority of potential revenue growth in coming years,” as Vikram Pandit, the chief executive of Citi, explained in a March speech.

More recently, JPMorgan Chase formed an international committee and named a longtime Jamie Dimon confidante, Heidi Miller, as its first president. She is supposed to focus on opportunities in Brazil, Russia, India and China, as well as everywhere else beyond North America.

Banks are also shifting their focus away from the mass market consumer toward the affluent. Morgan Stanley and JPMorgan are hiring brokers for their private client divisions, for example, notes CreditSights analyst David Hendler. The consequences of this, as Hendler sees it, are less access to credit and services for the middle class while more resources and capital are devoted to businesses the banks see as higher growth.

Unfortunately the whole point of financial regulatory reform was to improve access to credit for the middle class and to fix the banking system so the economy can rebound. “We believe that it may already be partially backfiring,” Hendler writes in a recent note.








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