Higher capital requirements are likely to divert funds from being loaned to consumers and businesses, boosting unemployment, and the cost of compliance with new rules will increase fees and boost inflation, he explained.
Smaller lenders assimilated to banks, such as GE Capital, will suffer, Bove said. (General Electric is the parent of GE Capital and CNBC.)
"You're forcing higher capital standards on companies… and that reduces the capital available for the economy," according to Bove.
"Basically you're forcing higher financial prices on the economy." Increasing requirements only for the big banks will reduce their competitiveness abroad and force them to shrink, he added.
It is not possible to avoid the cyclical boom and bust of the U.S. economy and there will be more downturns in the future, Bove said. But if regulators “do what they’re supposed to do, it will ameliorate the cycle,” he said.
Bove also said that the next wave of regulation should focus not just on the banks, but the U.S. financial system as a whole.
Meanwhile, concerns from former Federal Deposit Insurance Corporation Chief Bill Isaac that President Obama’s regulatory reform program would be split between too many separate bodies, are unfounded, according to Bove.
“The proposal requires that there be one set of requirements for regulating all of the banks, no matter which agency handles the regulation. Which means that you may have multiple agencies, but they all have to do the same things when looking at the banks,” he said.