Glass half empty?

Bankers are again voicing their concerns over the cost of regulation and its potential to drive business elsewhere. Anecdotally they are correct. But their ability to come up with hard numbers to prove their point has been lacking. At the same time politicians have set the tone for regulation. This has been framed by one of the most severe economic contractions since the 1930s which has stretched budgets and pushed monetary policy to the limit. In real terms people have suffered and there is general disbelief in the way bankers have escaped criminal prosecution and continue to get paid (at a senior level) very well indeed. Leverage, dominant competitive positions, expensive products and a government guarantees all made the big banks handsome profits.  But now the genie is out of the bottle a return to the halcyon days is not about to happen. Instead of complaining about regulation Chairmen of the biggest banks should perhaps consider how it may work in their favour. Large banks are still at the heart of the financial system. This puts them in an enviable and protected place. To remain there compliance is currently a necessity. Whilst the increased cost will undoubtedly chip away at return on capital it is not unique to any one bank. All banks suffer. But some suffer more than others. How you comply and keep the cost under control is now a matter of judgement for Boards. In this respect it is another business problem to solve albeit one that is relatively new and subject to change. In this world the “too big to fail” bank can spread its costs much more widely and it also has a much deeper pocket to hire the well-connected to smooth the path. Smaller firms can’t compete. The moat just got bigger.