Dodd-Frank unintended consequence: Big Banks get bigger in 2010 and will likely get bigger in 2011

The one fallacy that seems to be repeated over and over again, is that more regulation is bad for big business.  Au contraire mon frere.  Big banks love the new regulatory environment.  In fact, big regulations ensure that there will be no small competition eating away at its big profits.  What it all comes down to is big banks love big regulation because they know that they are the only ones that have the economies of scale to afford regulation.  In other words, big regulations put a big barrier to entry so small banks can't steal big bank profits. 

Ultimately, it makes the market less competitive and destroys value. 

Dodd-Frank Wall Street reform and consumer protection act was supposed to end Too Big Too Fail.  Instead of making banks smaller, it is making them grow even bigger and making even more likely a colossal bailout takes place.  Via Fitch:

The last few months of 2010 witnessed an increase in bank acquisition activity, and Fitch Ratings believes that this trend will continue and perhaps accelerate in 2011. The result of these actions will likely be an industry where market share is concentrated in a few large money center banks and a larger number of superregional banks that dominate specific geographies across the country. Presently, 69 banks have deposits of $10bn or more, and these institutions represent over 65% of total deposits in the country. Fitch would expect this greater concentration of deposit market share to continue to increase in the near-to-intermediate term given the expectation for elevated acquisition activity. Furthermore, this growing concentration implies that over the near term many community banks may struggle to grow and sustain profitability in the face of additional regulatory oversight.
The regulations paradox always happens, wether it be in airlines or financial services.  As much as I hate bad players, the best way to regulate markets is through robust, healthy competition, with spoils to the winners and no mercy (i.e. bailout) for losers. 


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