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Bank multipliers

US bank stocks are indicating that the new administration may scale back the regulatory onslaught that followed 2008. Could this make Bank capital requirements less restrictive? It could.

Other countries would need to follow suit or be at a competitive disadvantage. Whether you think this is good news depends on your views. On balance some rules have been helpful but regulation has become an industry that doesn’t add to productivity.

If the regime is relaxed it could have important economic implications. Whilst quantitative easing has lowered interest rates the anticipated economic upturn has been very muted. After all before the crisis a 5% cut in rates would have led to a red hot economy.

But if banks once again are free to expand their balance sheets it could turbo charge the current policy stance.

Whether this happens depends on credit demand and banks’ risk appetite. If it does it’s sure to be inflationary.

The economies that would be most affected stand to be where banks do the most intermediation. That’s Europe…..Interesting times.

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