“What the law did was force the banks to rethink their business lines, their pricing strategies, their methodology for maintaining their balance sheet,” banking analyst Dick Bove of Rochdale Securities said in an interview. “When they rethink it all, they will be able to offset all of the costs of this bill.”

Since President Obama signed the Dodd-Frank reform bill into law last week, the “too big to fail” have already started to figure out ways around it. While there are fears that the new rules might cripple the backbone of the U.S. financial system with the tighter capital requirements and restriction of risk-taking, Banks are expected to find loopholes in the law and exploit them. According to Bove, Banks will outsmart regulation and the government in four ways; mainly by going overseas, management contracts, passing the cost on customers, and getting bigger than ever.

The law seems somewhat one-sided as foreign banks don’t have to abide by the US rules and US banks doing business overseas can avoid the bill in certain ways. In a sense, U.S. banks can take some parts of their businesses overseas and avoid excess regulation. Another way around the bill is through management contracts. There is no clear definition or categorization of proprietary trading, but one thing is for sure and it’s that Banks can sell their private equity/ hedge funds to a third party and then establish a management contract in which the Bank would run those funds and take a percentage of fees. The third way is by taking it out on the customer, and that is passing on the costs of regulation on the customer. No more free checking accounts or check books would be a good start. Customers would be forced to pay a monthly fee to maintain their accounts.

Was the law really enacted to prevent banks from becoming too big? Because they’re already are. Small banks are being absorbed by larger banks and this scenario is going to persist due to the increasing bank failures. In 2009, 140 banks were foreclosed, and to date 103 banks have been seized by the FDIC which will eventually go through the public private investment program (PPIP). Since the beginning of the crisis, the big banks have become bigger and stronger. JP Morgan took in Bear Stearns and WaMu; Bank of America took in Merrill Lynch; Wells Fargo took in Wachovia.

Previous related articles:

The Financial Reform bill

Tags: Bank of America, Dodd-Frank, FDIC, jp morgan, US regulation

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