The banking sector is due for some major consolidation, says O'Leary Ventures Chairman Kevin O'Leary. The famed investor joined Yahoo Finance's Rachelle Akuffo in studio to offer his take on the outlook for the banking sector in the wake of recent turmoil. Small regional banks "made sense," in an earlier era, where a bank's relationship with the community was more important. But now, O'Leary says, "no one cares about that anymore," thanks to a rise in competitive online banking. After the government's investigation into the recent banking turmoil, O'Leary predicts new regulations and rules will come through for the banking sector. Those will make regional banks "unprofitable," he says. O'Leary adds that bank stocks themselves are "just a trade" and "not good investments." With an increase in regulation, bank stocks will become utilities, with O'Leary pointing out that banking is the only sector in the S&P 500 (^GSPC) that services the other 10. "Let's get over it," he says, and put regulations on the sector. "Let's have a moment of silence for these small regional banks. They're dead. It's over." Key Video Moments: 00:00:15 -- with banks "next idiot management" 00:00:37 -- "Nobody cares" about regional, community based banks now 00:01:08 -- Bank stocks are "not good investments" 00:02:00 -- "Everybody" banks on their phones now, online banking is robust Rachelle's full conversation with Mr. Wonderful can be found here.
The Yahoo Finance Live team looks at regional bank stocks as they close Tuesday lower following the Silicone Valley Bank hearing on Capitol Hill.
Veteran columnist Joe Nocera says the best way forward for the banking sector is to regulate, regulate, regulate. Nocera joined Julie Hyman and Brad Smith on Yahoo! Finance Live as the Senate's hearing on banking turmoil was underway. He says he was "stunned" by Fed Vice Chair Michael Barr's testimony statement, which says "it is not the job of supervisors to fix the issues identified; it is the job of the bank's senior management and board of directors to fix its problems." The problems present in the banking sector should be addressed, Nocera says, by bringing back the "sensible regulations" originally imposed in the wake of the 2008 financial crisis. Specifically, Nocera mentioned bringing back the stress test for banks, originally introduced under the Dodd-Frank act. The stress test serves as a barometer of how well prepared a bank is to weather uncertain economic conditions. A covered institution must run stress tests on a regular basis, to prove they have sufficient capital to keep afloat under stressful circumstances. Under the Trump Administration, stress test requirements were relaxed significantly; the minimum threshold for banks was raised to $250 billion, and the frequency of tests was reduced across the sector. This allowed smaller banks - like SVB - to slide under the radar. "I think a lot of these problems could have been avoided" had regulations been in place, Nocera says. Key Video Moments: 00:00:25 Bring back the stress test 00:00:36 Reimpose regulations from 2008 00:00:50 Problems could've been avoided if proper regulations had been in place To listen to our full conversation with Joe Nocera, click here.