Dick Bove: Living wills no way to run banking industry

Living wills for banks

Making banks draw up so-called "living wills" is not the right way to run an industry and seeks to weaken confidence in the banking system, noted bank analyst Dick Bove said Tuesday.

A dozen of the largest Wall Street financial institutions released their living wills Monday, detailing how they would handle a bankruptcy crisis without the help of taxpayer money. Banks initially sold off on the news but ultimately eked out a slight gain, with the Financial Select Sector SPDR Fund closing 0.2 percent higher.

Bove called the living wells "very negative" and said they essentially force banks to position against bankruptcy instead of focusing on growth.

"If you go to the management of any company and say, 'I want you to concentrate on what you are going to do when you go bankrupt' as opposed to 'I want you to concentrate on what you should do to assist the growth of your company, help your shareholders, your employees to build the economy,' you are going to get a very different result," the vice president of equity research, financial sector, at Rafferty Capital said in an interview with CNBC's "Closing Bell."

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Monday's living wills revealed many banks could wind up selling chunks of their businesses.

The institutions have been required to submit the plans in the wake of the financial crisis, and Dodd-Frank gives regulators the power to carve up the banks if they deem the wills not credible.

Bove said that while the banks were certainly a part of what went wrong during the crisis, they were not the cause.

"The banks did a lot of things wrong. The banks did take on too much risk. The banks made bad decisions. But they are only one part of a much large system that fell apart in 2006 and 2007," he said.

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—CNBC's Linda Sittenfeld contributed to this report.