Wells Fargo & Co (WFC), U.S. Bancorp (USB): Increased Regulation Harms Big Bank Bottom-Lines and You

All of these attacks have already proven costly for banks. Circumstances cost the banks sales during the hours their systems were compromised; they lost their customers’ faith in “bank-level security;” and the banks spent significant sums in repairs. Bulge bracket banks, such as JPMorgan Chase & Co. (NYSE:JPM), already pay security expenses that increase 7% to 9% every year. Spending more on security would hamper profit margins even further, especially during a time when net interest margins, the spread between which banks can borrow and lend, are so slim.

JPMorgan Chase & Co. (NYSE:JPM) analysts estimate the average return on equity will decrease from the current 15% to 9.6% by 2015 mostly because of new regulation. As these attacks shake consumer confidence and as higher regulation threaten profits, banks face some tough challenges.

Conclusion

Increased regulation forces banks to increase expenses and sometimes lose revenue, as they may need to sell off or close down a profitable business unit. Additionally, customers suffer as they lose certain services while also paying more for others in order to make up the difference. As consumers, we must see how this could leave us underserved.

Whichever way you slice it, increased regulations spell hard times for banks and customers alike.

This article was written by Michele Milheim and edited by Chris Marasco. Chris Marasco is the Head Editor of ADifferentAngle. Neither has a position in any of the stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM). and Wells Fargo.

The article Increased Regulation Harms Big Bank Bottom-Lines and You originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.