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Washington’s Impact on Bank Stocks Is Perceptual and Not Factual

Last week, U.S. stocks suffered their biggest weekly loss since October after concerns over Chinese monetary policy and new banking regulations. Financial institutions such as Bank of America, JP Morgan, and Goldman Sachs were hit the hardest by Washington’s new banking proposals, and Ben Bernanke’s prospects of winning a second term as Federal Reserve chairman.

Although bank stocks may have rebounded this week, these issues still remain unresolved. As these uncertainties continue to weigh on the market, investors hoped to receive some insight to the fate of large bank stocks at the state of the union, but instead received a joking remark. “And if there’s one thing that has unified Democrats and Republicans, it’s that we all hated the bank bailout,” Obama said. “It was about as popular as a root canal.” Investors may not be too happy with Obama at this point, but realistically, proposed fees on the biggest banks is only fair. As perfectly justified by Obama, “If these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.”

The quicker that investors understand that Obama is not in favor of punishing banks, but rather protecting the economy, the more bullish it is for large bank stocks. There may be some volatility in the bank stocks due to investors’ perception of Washington’s happenings, but it is only perceptual and not factual. If banks can survive the recession, then such policies should not impact its long term growth.