Democrats won the support of a senior Republican who voted in a Senate committee Wednesday for a sweeping overhaul of the market for derivatives, the complex financial instruments at the heart of the financial crisis.With 41 Republican's in the Senate this is a critical achievement for the bill. It will be interesting to see how bank shares react. Tim Duy highlights positive developments making the economic recovery looks sustainable but stock prices and risk assets still appear to be on the high side.
This is particularly true of bank stocks given the public outrage over the pay structure and conflicts of interest. Reducing systemic leverage is another likely regulatory theme. Regulatory uncertainty along with lingering insolvency fears make it difficult to understand how owning bank shares makes sense to anyone here. My personal view is that bank shares are in for a lost decade as deleveraging and capacity reduction work through the sector. We shall see.