Banking Deregulation No Panacea for Financial Sector Funds

Financial sector fund managers are licking their chops, watching lawmakers get ready to tear down outdated boundaries between banks, brokers and insurers.

The changes could usher in a freewheeling era of consolidation and turn many financial stocks into takeover plays. But despite the recent run-up of stocks in the sector, money managers say the outlook is anything but certain. And the possibility of rising interest rates insert an element of uncertainty that Congress can't legislate away.

The laws on the chopping block are the Glass-Steagall and Bank Holding Company acts, Depression-era laws designed to keep banks, brokers and insurers separate. Lawmakers have eroded the rules for years, but after a bipartisan compromise was hammered out last Friday, Congress is expected to erase these divisions completely. This will allow banks, brokers and insurers to merge or enter one another's businesses, offering a range of financial products and services under one roof, a la Citigroup. ...