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3 Banking Takeaways From the Quarter

Regulation, rates, and real estate all made headlines in the financial-services sector in recent months and could create ongoing headwinds for several firms.

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Jim Sinegal: Three big stories in banking this quarter are related to regulation, rates, and real estate. On the regulatory front, it continues to cost banks a lot of money. We saw JPMorgan invest a lot in internal controls. It seems that Deutsche Bank has been providing faulty data to regulators for a number of years, and Discover, now is having trouble with bank secrecy and money laundering. So expenses related to increased regulation are not going anywhere; it's something that's going to continue to affect banks for a number of quarters.

On the rate front, people are getting excited about rising rates. I'm a little less optimistic. We have the most dovish Fed share in a long time. It looks like she's willing to keep monetary stimulus going as long as it takes to get the economy back to normal, and it's not so much that will only benefit banks. It's hurting them on the interest revenue side, on the lending side of the business, but it's helping in terms of asset management, M&A, and things like that. So, even if rates do start to rise, it won't be all good for banks.

Jim Sinegal does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.