Deregulation Rallies Bank Stocks, But Be Aware Of The Risks

  • Bank shares rally predictably on the prospect of financial deregulation. They did so twice in the past 6 months already.
  • However, financial deregulation is very risky as the cost of financial crises are much larger than those of garden variety recessions.
  • Reducing the risk of future financial crisis should therefore be the main driver of financial regulation.
  • The main driver of the Government proposals are to spur bank lending, while there is little evidence regulation holds that down in significant amounts.
  • This therefore seems a business friendly proposal, rather than a market friendly proposal, an important difference.

Source: Deregulation Rallies Bank Stocks, But Be Aware Of The Risks | Seeking Alpha