by J. J. Kellington on June 8, 2012
New capital rules (money which banks have to set aside as a safety net to avoid another banking calamity and financial crisis) will cut into the major banks’ profits while also raising costs.
By having to set aside more money, funds will be taken away from allocating cash towards new products, services, trading and employee compensation. Risk will be reduced, which will reduce the need for certain traders and speculative activities. Less trading will result in less profit for firms. Less profit equal more layoffs and smaller raises and bonuses. Also, the costs attendant with complying with the new rules will increase. Therefore, not only will revenue decline, but costs will increase, creating lower profits at a time when banks are already suffering.
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