How the pursuit of shareholder value weakened the economy

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Deregulating financial markets is dangerous enough, but it looks also to have very little upside. Again, shareholder capitalism is to blame..

If Donald Trump gets his way in overhauling banking regulation, it would free up some of the billions of dollars in capital that banks were forced to amass after the financial crisis. Less clear is what they’ll do with it.

After the administration released a highly anticipated 150-page report this week, Wall Street analysts spent two days churning out notes digesting its proposals. Researchers at Goldman Sachs Group Inc. calculated the five largest banks, excluding their own employer, have $96 billion in excess capital. Bank of America Corp. said the plan might unleash as much as $2 trillion in additional lending.

But is that how the money would be used? President Trump would like banks to plow their windfall back into the economy by making more loans to home buyers, small businesses or companies looking to expand. Some on Wall Street predict a lot will flow straight into the pockets of shareholders. One measure would ease annual stress tests, giving firms leeway to increase dividends, Credit Suisse Group AG analysts wrote in a May 24 note anticipating the proposals.

“These are shareholder-driven entities, first and foremost,” said David Hendler, the founder of New York-based researcher Viola Risk Advisors. “They will turn on a little more dividend or buy back stock, mostly.”

One problem is that qualified borrowers have ample access to financing and aren’t demanding more -- a slump that bank executives have bemoaned. And delinquencies on credit cards and auto loans already are rising. The loss rate on car loans made to people with good credit and packaged into bonds, for example, was the highest in the first quarter since 2008, S&P Global Ratings said in a recent report..

If Trump Unlocks $2 Trillion at Banks, Here’s Who May Get It - Bloomberg