Is regulation killing banks?

Amid growing concerns about a global recession, sellers can be hard-pressed to find buyers in the market. One industry insider blames regulation.

Regulation causes a lack of liquidity by forcing banks to reduce balance sheets; strangles the capital market's ability to provide credit; and leads to shadow banking system, said David Castillo, managing director of sales and trading at Odeon Capital Group.

"It's very difficult right now to find liquidity on many assets in the market, and the difficulty is that the banks are dis-incentivized to participate in the market," he told CNBC's "Power Lunch," on Monday.

His advice for the average investor: look out for liquidity capabilities in the fixed-income markets.

But, another industry veteran plays down regulation as having a frosty effect on business.

Regulation reduces both systemwide and company-specific risk and improves the industry's financial strength, says David Katz, president of Matrix Asset Advisors. What's more, he says, regulatory costs are now factored into earnings power but banks are still very profitable.

"While they're managing the cost well and lowering their personnel in areas that are not as profitable, they're making a great deal of money, a healthy return on equity; they're selling at or below book value," Katz said.

Katz also projected that banks will experience a tailwind after the Fed raises rates, again, a move expected later this year.