NEW YORK, NY -- (Marketwire) -- 05/01/12 -- Banking stocks have continued to impress investors in 2012. The SPDR KBW Bank ETF (KBE) is up nearly 19 percent year-to-date. But new rules and limits proposed by the Federal Reserve look to have a negative impact on the Banking Industry. The Paragon Report examines investing opportunities in the Banking Industry and provides equity research on Morgan Stanley (NYSE: MS) and Goldman Sachs Group, Inc. (NYSE: GS).
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Last December the Federal Reserve had proposed tougher standards and supervision for the "Big Banks" whose failure would jeopardize the U.S. economy. The central bank set a limit of 10 percent for credit risk between a company deemed "too big to fail" and their counterparty, which would come into effect if each party had a total of $500 billion in assets or more. "The Federal Reserve has provided no basis to determine that imposing the dramatically lower and arbitrary 10 percent credit limit on certain major covered companies would even help mitigate risks to the U.S. financial stability, much less be necessary," according to a letter sent to the central bank by five banking trade groups obtained by Bloomberg News.
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Morgan Stanley's fixed income trading unit will likely see major struggles if they receive a three-level downgrade from Moody's Investors Service. According to Brad Hintz, analyst at Sanford C. Bernstein & Co., the downgrade could potentially slice 30 percent off revenues derived from fixed-income derivatives. "The potential downgrade makes it more difficult for MS's fixed-income business to sustainably outperform," wrote Hintz.
Goldman Sachs Asset Management Chairman Jim O'Neil has been approached by Britain's Finance Ministry as a potential candidate for the next governor of the Bank of England according to the Sunday Times. The company recently reported 2012 first quarter earnings per common share of $3.92 and increased the quarterly dividend to $.46 per common share.
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