Financial regulation reforms, now in the last stages before becoming law, will mean that millions of people will lose access to banking services, Dick Bove, banking analyst at Rochdale Securities, told CNBC Thursday.
Congress will vote later Thursday on the Wall Street reform bill, which is the biggest attempt to revamp financial regulations since the Great Depression and aims to tighten regulation to avoid a new crisis like the one that swept through the world economy between 2007 and 2009.
Under the bill there will be new limits on risky trading by large banks and many of them will have to hoard more capital to prepare for times of crisis to avoid being bailed out by taxpayers.
A new consumer protection authority will oversee financial services companies such as mortgage brokers or student lenders and regulators will be able to dismantle troubled banks and impose leverage limits on the banks deemed too big to fail.
All this will mean that banks will impose fees on existing consumers to try to make up for cash they need to store as capital or spend on levies, and consumers who cannot pay the fees will have to give up on banking services, Bove said.
He estimates that "at least 10 million people" will lose banking services in the US after the new financial regulations come into force, because "they just won't be profitable for banks and banks won't keep them."
JPMorgan reported a better-than-expected second-quarter profit earlier Thursday, but Bove said the figure was not good because it was partly boosted by the fact that it took money out of its reserves to put into earnings.
"What you're going to see is that just about any bank that reports numbers… is going to do the same thing," he said. "That's something that banks have always done in recoveries."
High Risk of Double Dip
But the risk of a double-dip recession is not yet in the past, and banks will have to put this money back into reserves if the economy tumbles again, Bove warned.
"What they're doing is increasing their vulnerability if there is another downturn," he said.
Money supply is shrinking because banks are not lending further, despite the Federal Reserve's efforts to flood the market with cheap money, he said, adding that banks are not lending because of the various claims on their capital from regulations.
"How can economy expand if money supply is shrinking?" Bove said.
"I think that there is a 40-60 percent shot… if they cannot get money supply to go up, there is a probability of a double dip," he said.
Because trading in asset markets - an important component of banks that also have investment banking arms – has been bad over the second quarter, investors should not expect increase in big banks' revenues, according to Bove.
Regional banks such as BB&T and US Bancorp are the ones where a rise in revenues may be seen, he said.
JPMorgan, with a 37 percent fall in investment banking fees, showed what a bad trading season can do to revenue, Bove said.
"I think they took reserves down too dramatically, given that we do not have a clear picture of where this economy is going to be on Dec. 31 this year," he said.