Banks Have One Reason To Cheer The Sequester: Big Cuts To Financial Regulation

You have to hand it to the banks: No matter how bizarre or dire the crisis hitting the broader economy, they will find a way to take advantage.

Take the sequester. Please, take it away so that we don't have to write about it any more. But until you do that, know that the "sequester," that series of draconian federal budget cuts due to hit on Friday, will be terrible news for the economy and normal humans. For banks, however, there is a silver lining: The sequester will slow down the financial regulation that gives bankers a soul-ache.

That's because the sequester's icy scalpel of death will slice through the budgets of the various regulators keeping an eye on the banks and working to set up new financial rules mandated by the Dodd-Frank financial reform act.

The Securities and Exchange Commission could lose up to $108 million of its $1.3 billion budget, and the Commodity Futures Trading Commission could lose $17 million of its $205 million budget, according to recent White House estimates cited by American Banker.

Those estimates assumed a full year's worth of budget cuts. Because the cuts won't actually begin until March 1, regulators don't have to worry about losing quite that much money this year. But these cash-strapped agencies are already struggling to keep up with the better-bankrolled industry they oversee and can't afford to lose any cash.

“They can barely do the job they’re supposed to do now," Dennis Kelleher, president of the advocacy group Better Markets, told The Hill. "It would be a travesty if, on top of that, their resources were cut.”

The Dodd-Frank law-making process was already taking a miserably long time, with just one-third of the nearly 400 new rules mandated by the legislation finalized so far, more than two years after the law was passed, according to a progress report by the law firm Davis Polk. With the sequester, the speed of this process will likely slow from "chilled snail" to "thawing turtle."

It's not all good news for the banks, sadly. The Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency will at least be exempt from the sequester's knife, The Hill points out. That means the bare minimum of banking regulation will continue.

And to the extent that the sequester hurts the broader economy, that could in turn eventually hit the financial markets and bank stocks in particular. An economic slowdown hurts banks' ability to make good loans, Keefe Bruyette & Woods analysts noted on Monday. Even then, they'll still have their $83 billion (or so) taxpayer subsidy to help them soldier on.