US Risking Recession With Attack on Big Banks: Bove

A government desire to break up the nation's largest banks and discourage lending is going to force the US into a recession, analyst Dick Bove said.

Speaking just days after the Federal Housing Finance Agency sued 17 banksover mortgage-related practices during the collapse of the subprime lending industry, Bove told CNBC that Washington is acting without concern over what effect its actions against banks are having.

In addition to the lawsuits, the Obama administration and Congress have taken aim at the financial services industry with a series of measures aimed at reducing risk and making banks take on larger capital requirements. The new capital rules could force banks to shed assets, reducing their size.

"At one point the four largest banks in the United States had 50 percent of the assets of the banking industry, and the government wants to break up those banks," said Bove, vice president of equity research at Rochdale Securities. "The government doesn't want those banks to exist in that fashion any longer. It wants to see a spreading of, if you will, the risks across the banking industry."

"The fact of the matter is it doesn't seem to care what it's doing to the economy," he added. "Removing credit progressively from the United States economy (is) going to force this recession to occur."

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Bove said banks that engage in traditional businesses of collecting deposits, making local loans and transferring funds are being rewarded, while those that lend more aggressively—and help the economy grow—are penalized.

As such, investors have backed away from the banks, in some cases sending share prices not only below book value but also liquidation value.

Bank stocks, as measured by the KBW Bank Index , are off about 31 percent in 2011.

"Because the government views its goals and its actions to be beneficial to the system over the long term, it does not care what the short-term impacts will be," Bove wrote in a research note. "If the economy must slow and unemployment rise so be it. The government is not going to stop until it achieves the goals it wishes to see implemented."

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