CreditSights believes that the prospect of the breakup of big banks such as Citigroup (NYSE: C) is receding in the light of the Obama Administration’s proposed regulatory changes. However, Standard & Poor’s still sees this as a real possibility, according to CreditSights’ interpretation of an S&P conference call on its recent downgrading of many retail banks.
In contrast to our view that the Obama proposal reaffirms the position of large banks, S&P seemed more cautious and stated that it did not know how regulators would look at systemic risks. The agency seemed to believe that there could still be a real possibility for big bank break-up scenarios, whereas we feel that this risk is receding.
S&P noted that the Obama plan seemed to call for a more level playing field between banks and non-banks, but could also lead to differentiation among banks between the Tier 1 FHCs (systemically important financial institutions) and others. The agency stated that it would have to evaluate the implications for competitiveness for institutions which might be subject to different rules and/or higher standards under the proposal.
CreditSights has published its initial thoughts on the plan, especially as it relates to the long-term structure of the banking industry and the creation of new oversight bodies such as the CFPA (see: Bank Regulatory Overhaul: Obama Proposals Reviewed).
CreditSights analysis of S&P’s downgrade actions U.S. Banks: S&P Bank Ratings Revamp includes a useful table showing the degree of downgrades: