Analyst Dick Bove Defends Big Banks, Slams Regulators

Big banks don't have many loud cheerleaders these days, but they might not need many more than Dick Bove.

The longtime bank analyst has been on a somewhat solitary mission to defend the banking industry, and especially its largest companies, against many of the criticisms it has faced since the financial crisis. Outspoken and unapologetic about his opinions, which range from the well-argued to the tenuous, Bove has been in business for more than four decades and is one of the most quoted voices on Wall Street. He is not always pro-bank: one of his reports got him sued for defamation in 2008 by BankAtlantic, in a dispute that was eventually settled out of court. But in the past year, as big banks have come under mounting scrutiny over their size and risk-management, Bove has increasingly stepped up in their defense, in part by attacking many of their critics.

In a new book, Bove takes aim at what he sees as vindictive media coverage, politicians' irresponsible reactions to the crisis and burdensome, ineffective regulation. He is particularly incensed about the Dodd-Frank Act, the sweeping (if unwieldy and still partially-undefined) financial reform law passed in 2010.

"I don't think there was any necessity for creating all of this [regulatory] superstructure that we now have in place …this is the worst Rube Goldberg contraption ever created," Bove said in an interview.

Bove's fondness for such dramatic pronouncements is given free rein in his book, bluntly titled Guardians of Prosperity: Why America Needs Big Banks. The book is a defense of the functions that banks perform in the American economy and their roles in the lives of ordinary Americans, who might otherwise be "forced" into the arms of payday lenders and other, presumably less-scrupulous nonbank financial services providers. It is also the latest in Bove's attempts to sound an alarm about what he sees as misguided efforts to break up or shrink big banks.

"Both the legislation and the rules designed to make banks smaller are jeopardizing our standing in the world and our ability to compete," he warns in his book. If unchecked, they could lead "to a point when we can no longer call America a superpower."

Guardians of Prosperity is also an attack on the other parties who, in Bove's view, deserve more blame than banks for creating the financial crisis. He fingers the federal government's pre-crisis, pro-housing agenda and has harsh words for banking regulators who, he claims, had the tools to prevent the financial crisis but were too lax in wielding them.

"The Federal Reserve simply dropped the ball on regulating Citigroup," he said during an interview. (He spends less time dwelling on what banks like Citigroup (NYSE:C) did to require more active regulation.)

Bove got even more granular in criticizing individual regulators in a video interview.

"It was a preventable crisis, if the regulators had done their job, which they did not do at all," Bove argued. "Mr. [Alan] Greenspan did not do his job, Sheila Bair did not do her job, John Dugan did not do his job, [Christopher] Cox over at the SEC did not do his job — if these people actually did the job that they were put in place to do, they could have stopped the excesses that occurred in the banking system. … They didn't do it because Congress didn't want them to do it."

The individuals Bove cited headed up the U.S. Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Securities and Exchange Commission, respectively.

Dugan, formerly the U.S. Comptroller of the Currency, said in an email, "Hindsight is 2020. While bank regulators all wish we had done some things differently, in fact we took a number of strong measures to address problems that contributed to the crisis, including substantial restrictions on exotic mortgages. … I'm proud of the measures that the OCC took both before and during the crisis to address problems at national banks."

Cox and Bair, the former head of the Federal Deposit Insurance Corp., did not respond to requests for comment; nor did representatives for former Federal Reserve Chairman Greenspan.

Bove's views on banking regulators' culpability for the crisis are rather extreme, even amid the ongoing post-crisis blame-game among bankers, policymakers and consumer advocates. For example, Bair sounded an early alarm about risky mortgage-lending practices prior to the financial crisis and is regarded by many as having been one of the most aggressive regulators during that era.

But by arguing that regulators failed to enforce existing rules, Bove lays the foundation for his premise that Dodd-Frank and other new laws that have cropped up since the crisis are unnecessary.

"There was no necessity to create Dodd-Frank, no necessity for the Basel group. All of the regulations in place would have stopped these banks from doing the things that happened prior to 2008," he said.

So does Bove believe big banks are beyond reproach for their actions in the run-up to the crisis? It's not a topic he cares to dwell on.

"I don't disagree at all that the financial crisis was aided and abetted by banking," he says. "They didn't create it."