Regulatory Story
It's Not How Much Banks Make But How They Make It
Absolute profits matter less than the regulation-influenced return on assets and equity.
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Ever since the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in 2010 to avert a repeat of the 2008 financial crisis, endless debates have taken place about whether the law and its accompanying regulations are too hard on financial firms.
No matter your opinion about Dodd-Frank, it’s hard to get around the fact that financials have struggled to keep up with their nonfinancial peers since the law was enacted. The return on assets for the S&P 500 Financials Index has averaged 1 percent since 2011, compared with an ROA of 2.9 percent for the S&P 500. The average ROA for the financials index is also the lowest among S&P 500 sectors.