Wall Street is waiting for more information since President Obama’s proposed curbs on how banks with insured deposits invest their own capital. Are the banks taking on too much risk? Michael Pento, senior market strategist at Delta Global Advisors, and Christopher Whalen, senior vice president and managing director at Institutional Risk Analytics, shared their insights.
“Banks are very confused right now,” Pento told CNBC.
“The Obama administration says they have to lend more, the regulators are saying they have to increase their capital and [FDIC head] Sheila Bair is saying get ready for much higher interest rates.”
Pento said total loans and leases for banks are down 7 percent year-over-year, so they are doing the right thing by limiting their risk.
“The only problem is that they’re lending a lot of money to the government, which has allowed these huge deficits to explode,” he said.
In the meantime, Whalen said the magnitude of the losses that the banks will have to work through over the next few years is still very large.
“The righteous banks are coming out of this,” he said. “At the same time, the larger institutions, especially the ones with off-balance sheet exposures, are going to be in pain for most of this year.”
“And don’t look for them to grow—if anything, they’re going to get smaller,” Whalen added.
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No immediate information was available for Pento or Whalen.