Lenders large and small will also be affected by the "skin in the game" rules under Dodd-Frank, which send banks "back to the future," according to Comizio, in requiring lenders to retain a significant piece of the risk when they securitize residential mortgage loans or sell commercial loans into syndication or participations.
"You can imagine that to the extent that largest banks are feeling the regulatory requirements," Comizio says, but "the smaller institutions are feeling them even more, since they do not have the scale to deal with them.
Another major factor, especially for savings and loan associations, is their transition from being regulated by the Office of Thrift Supervision, which was folded into the OCC in October 2011. "There are pretty tough examinations for the first cycle or two, as the regulators turn over every stone they can," Comizio says.
Thrift holding companies are also "subject to a much more hands-on regulation under the Federal Reserve's rules and under Dodd-Frank, as the OTS tended to focus much more on the thrift subsidiary itself," according to Comizio.
A Hostile Rate Environment
With the Federal Reserve keeping its short-term federal funds target rate in a range of between zero and 0.25% since late 2008, most banks have already seen most of the benefits of lower funding costs. Meanwhile the Fed is doing everything it can to keep long-term rates at their historically low levels, which leaves most banks with narrowing net interest margins as loans reprice. Banks are also looking to keep the maturity of their securities investments short, so they can take advantage of better opportunities when rates eventually rise again. Goldman Sachs analyst Kris Dawsey on Wednesday wrote that "based on our economic forecasts the Fed may purchase up to $2 trillion in Treasury securities and MBS under QE3, before the first fed funds rate hike in early 2016." The Federal Reserve Open Market Committee itself has said that it "anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015." This means that banks will continue to feel the margin squeeze for years, and in order to grow earnings -- and support higher stock prices -- banks have to ride the mortgage loan refinance wave, grow their commercial loan portfolios, and cut expenses. For many of the largest industry players, the continued release of excess loan loss reserves has been padding earnings.