F.D.I.C. Chairman Sheila Bair Says Brokerages Should be Regulated, Depositors May Benefit

There has been a flurry of discussion recently in Washington and amidst the various governmental organizations about how to move forward on better regulating investment banks.  F.D.I.C. Chairman Sheila Bair said recently that:

“The government cannot be put in the position of having to simply write a blank check when these institutions get into trouble.”

According to a special report on Marketwatch.com Brokers threatened by run on shadow bank system:

"Next year, Congress likely will pass legislation forcing big brokerage firms to be regulated fully by the Fed as financial holding companies, Brad Hintz, a securities analyst at Bernstein Research and former chief financial officer of Lehman, said."

This is expected and I wrote about the implications of this in an article entitled How the Credit Crisis Will Impact Your Interest Rates. 

"There will be a huge demand for deposit dollars.  As banks bring loans back onto their balance sheets, they are going to need deposit dollars to support those loans and deposits are among the cheapest ways to get them."

The Marketwatch article supports this, saying:

"A newly empowered "super Fed" will likely encourage these firms to arrange longer-term, more secure sources of borrowing and even promote the development of deposit bases, just like commercial and retail banks, the analyst explained"

Overall, this will cut the profitability of big brokerage firms and invesment banks.  The demand for deposit dollars will drive up the rates that banks are willing to pay but at the same time will result in higher interest rates on loans and credit products.

The credit crunch and the collapse of Bear Stearns heralded the end of an incredible "easy money" period and the profit which flowed from it.  Look for big changes in the coming years as consumers and financial institutions adapt to the collapse of the 10 trillion shade banking system.