Janet Yellen, dubbed “Ms. QE Infinity” by some wags because of her support for printing money to create jobs, and her willingness to pierce the Fed’s long-held 2 percent annual inflation ceiling, will have more to worry about than monetary policy when she steps into Ben Bernanke’s ample shoes on February 1. There is the small matter of regulating the nation’s banks, a chore made difficult for her by two unrelated facts.

The first is that she does not have as firm a theoretical grasp of regulatory issues as she does of monetary policy. Second, her relations with fellow Fed governor Daniel Tarullo are reported to be more than a little fraught. And Tarullo, a one-time Obama campaign adviser still close to the White House, has primary responsibility for the Fed’s bank-regulation program. The differences between Tarullo and Yellen is not doctrinal – both favor aggressive regulation – but personal, which unfortunately often proves to be the more difficult to overcome.

While attention focuses on the will-she-won’t-she- taper-soon guessing game popular with traders and the business press, the problems faced by America’s banks receive far less attention. And they are many and non-trivial. Indeed, the more important question is whether the world has changed sufficiently to cause us to wonder whether the big beasts of the banking world are on course to becoming heavily regulated, boring financial utilities, more like your local electric company than like the money-spinning, risk-taking institutions of the good old days before Lehman Brothers made its noisy exit from the financial sector. Put differently, did Brookfield Office Properties, a large New York City landlord, have it right when it changed the name of its World Financial Center complex to Brookfield Place in recognition of the ongoing shrinkage of the demand of big banks for commercial office space in the world’s financial center?

The first problem for the banks is that the end of the refinancing boom – trading in mortgages with relatively high interest rates for ones with lower rates, and paying a nice fee for the privilege – is cutting into profits. Wells Fargo, which writes 30 percent of all mortgages, reported yesterday that mortgage applications in the third quarter dropped to $87 billion from $146 billion a year earlier. Layoffs have inevitably followed. Citigroup and other leading lenders have laid off a total of 7,000 workers in their mortgage departments, and more pink slips are sure to follow.

The second is lower loan growth. U.S. companies are rolling in cash, and are able to borrow directly in the markets without bothering to have a chat with their friendly bankers. This particular version of disintermediation – going directly to the market to borrow money – deprives banks of the handsome fees they once charged big businesses in need of loans. Add to that a recovery too anemic to make it necessary for many companies to expand, and the banks that once treated potential borrowers with a certain hauteur now find themselves beating the boardrooms for business.

This is especially true of the largest banks, under pressure from regulators to avoid risky lending, and uncertain just how new regulations and increasingly stringent “stress tests” will crimp their ability to lend. The Fed reports that the nation’s 25 largest institutions ranked by assets saw hardly any loan growth at all – 1 percent – compared with 4.7 percent for smaller banks. Being too big to fail now has some disadvantages that offset economies of scale enjoyed by the big banks, if indeed any such economies exist.

Then there is the problem of declining revenue from fixed income trading. Don’t worry if you don’t quite understand what this business involves. All you need to know is that revenue from fixed income trading is an important source of profits and, “Banks mostly reliant on fixed income trading are scrambling for ways to offset substantial declines in revenue and [the effect of] new regulations, with bankers predicting deeper cost cuts and job losses,” as a recent issue of the International Financing Review puts it. “A full scale rout in trading” has prompted analysts at Sanford B. Bernstein to cut earnings estimates of Morgan Stanley and Goldman Sachs.

The fourth source of long-run strain on big bank profits is and will continue to be the cost of defending law suits and of legal settlements. When Jamie Dimon, chairman and CEO of JPMorgan Chase, who now realizes he made a serious error when, was told that his London traders had run up some losses, he mistook that whale for a minnow and called it a tempest in a teapot. To borrow from Winston Churchill’s “some chicken, some neck” 1941 speech in Ottawa, some tempest, some teapot. The firm lost some $6 billion on those unauthorized and undiscovered trades, and eventually agreed to a fine of almost $1 billion.

That fine is small change compared to what JPMorgan now faces. The bank set aside more than $9 billion for litigation and settlement costs in the third quarter, more than wiping out all of JPMorgan’s earnings. Result: a loss of $380 million. Dimon, seeking what he calls “a fair and reasonable settlement,” met with Attorney General Eric Holder and offered to pay some $11 billion to settle cases related to his bank’s sales of mortgage-backed securities by Bear Stearns and Washington Mutual before they were acquired by JPMorgan. He had to swallow hard since Dimon acquired these failing enterprises in response to urgent pleas from the government, convinced that the failure of those companies would threaten the entire financial system. Gratitude is not in long supply in Washington, where no good deed goes unpunished.

There is an irony in Dimon’s visit to Holder. In 1901, when President Teddy Roosevelt sued to break up a railroad monopoly erected by J. P. Morgan, the great financier, hied to the White House and told the president, “If we have done anything wrong, send your man to my man and they can fix it up.” Fast forward 112 years and JPMorgan Chase sends its man to see the president’s man to try to fix it up. So far, no dice.

JPMorgan is not the only bank setting aside billions to cover legal costs and settlements. Whether the proliferation of these actions is a result of closer regulation to reduce the possibility of another financial meltdown, or of plaintiff and government lawyers following bank robber Willie Sutton’s example – he robs banks, he said, because that is where the money is – we do not know. But we do know that big banks face earnings pressures that won’t go away. Or worse: critics, including Sandy Weill, the creator of the Citigroup conglomerate, are saying that not only are the big banks too big to fail, they are too complex and diversified to manage and to regulate, and would remain so even if the Volcker Rule is finally promulgates. Best to break them up.

But Fed governor Tarullo thinks he can effectively regulate these banks. Yellen will have to decide whether he can, or to take Weill’s advice, throw in the sponge, and opt for break-ups.

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