Bank regulations – Balancing the books

Bank regulations – Balancing the books

Rules are hurting profits; but banks still have a lot of fat to cut

May 5th 2012 | from the Economist Magazine


 THE activists from Occupy Wall Street and Occupy London, having braved the winter cold in their huddled tents, re-emerged to march on banks in protest on May 1st. Instead, they might ask themselves a question: is it good that the big bad banks that rile them so are barely profitable?

In America banks are earning an average return on equity of about 8%, which is less than their cost of capital. The only consolation for American banks is that they are doing better than Europe’s, which have earned meagre returns of about 4-6% in most big countries. Given the riskiness of investing in banks, shareholders would have done better to deposit their cash in banks rather than buy their shares.   [more ]


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