A Hard Hit to Banking's Bottom Line

June 23, 2010 at 1:25 PM
The various proposed regulatory changes entail the imposition of higher capital requirements, reduced fee income, and restrictions to operating powers. CPG analysis shows that regulatory changes, absent an increase in revenue, will cause average ROEs to fall 260 basis points (and probably higher as our estimates tent toward conservative in many cases). When compared to the 2006 median ROE for the industry of 13% (hard to look at ROE since 2006), this translates to a 20% drop - quite a hit to banking's bottom line at a time when the U.S. economy and especially main street businesses need the banking sector more than ever. Our analysis doesn't reflect the likelihood of higher FDIC insurance assessments and compliance costs which will further erode bank profitability. Banks will need to get busy to create new value propositions and improve efficiency to replace lost income.
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