While stocks and index ETFs are moving higher, spurred by the promise of lower inflation and potentially fewer rate increases by the Fed, some bank ETFs and stocks like Invesco KBW Bank ETF (KBWB) are swooning in the wake of more stringent regulatory measures.
On Friday, JPMorgan Chase executives noted that more rigorous regulations due to the most recent group of bank failures this year would increase costs for consumers and businesses while driving lenders to leave some businesses altogether.
While this is bad news for some banks, JPMorgan CEO Jamie Dimon explained how other financial participants could reap the benefits of such increased oversight.
“This is great news for hedge funds, private equity, private credit, Apollo, Blackstone,” Dimon said, naming two of the largest private equity players. “They’re dancing in the streets.”.
Banks must follow guidelines that mean maintaining additional capital to cushion against risky activities from U.S. and international regulators. Authorities are pushing for even greater capital requirements for banks with at least $100 billion in assets following the untimely fall of Silicon Valley Bank in March. Plus, there’s an eagerly anticipated set of international rules brought on by the 2008 financial crisis.
Before banks are put out of certain businesses, however, CFO Jeremy Barnum explained that banks would raise prices on end users of loans and other products first.
“To the extent we have pricing power and the higher capital requirements means that we’re not generating the right return for shareholders, we will try to reprice and see how that sticks,” Barnum said.
“If the repricing is not successful, then in some cases, we will have to remix. That means getting out of certain products and services,” he said. “That probably means those products and services leave the regulated perimeter and go elsewhere.”
Good News For Private Equity Firms
Private equity players like Blackstone and Apollo have taken on a greater lending role in the industry following the 2008 financial crisis. That led to more stringent regulations which forced banks to refrain from certain activities such as mortgages and student loans.
This group of non-bank players is known in some circles as the “shadow banking” industry. It has led to worries among some financial experts who see them often facing lower federal scrutiny than banks, which could lead to additional issues in the future.
Bank ETFs seem to be reacting poorly to the new regulations. As of just after 1 PM Friday, the Invesco KBW Bank ETF (KBWB)is down 1.9%, while the SPDR S&P Bank ETF (KBE)is 1.79% lower, and the First Trust Nasdaq Bank ETF(FTXO) is off by 1.43%.
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