Study: Financial executives fear new regulations

NEW YORK — Financial services executives believe proposed financial oversight legislation will have a negative impact on their businesses, according to a new study from KPMG LLP. The annual business climate survey conducted by the audit, tax and advisory firm in April and May also found that executives were bullish about their business prospects this year and next despite concerns about new regulations. Nearly 90 percent of 134 executives polled believe the legislation for financial oversight will be enacted, and more than half said they expect it to affect their businesses negatively, according to the survey. The creation of a consumer protection agency to police lending was cited second-most frequently as likely to hurt their profits. The overall legislation aims to prevent a recurrence of the 2008 financial crisis by requiring more government attention to potential risks to the financial system. The Senate and the House are currently working out differences in their bills for what would be the most sweeping changes to financial rules since the Great Depression. A tentative deal made Monday, for instance, puts limits on the fees banks charge merchants who accept debit cards. The agreement requires the Federal Reserve to set limits based on what it considers "reasonable and proportional" to the cost to banks. Other provisions include stricter mortgage requirements to eliminate the so-called stated-income loans and would limit the ability of banks to make profits by engaging in speculative trading with their own money. There are major issues still unresolved, including how to regulate the complex securities known as derivatives and how much capital banks should hold in reserve for protecting against losses. Banks have argued that eliminating certain assets from bank reserves as proposed would cost them about $130 billion in lost capital. About 43 percent of respondents said the biggest drawback to the legislation would be regulations requiring increased capital. "While the impact will vary depending on the final form of the legislation, it is likely to have sweeping implications — including governance, risk, compliance, and capital — for financial institutions," said Scott Marcello, KPMG's financial services industry leader. Despite those concerns, executives were optimistic about their business prospects. More than 60 percent said quarterly revenue and net income were better than a year ago, while 75 percent said both would be better in 2011. More than half said their company's ability to get financing and raise capital improved over the past six months. Half of those polled said they expected to add employees, while nearly a quarter expected to make reductions to their staffs. About 65 percent of executives said they've shifted emphasis from cost-cutting initiatives to investing for long-term growth. The US economy has seen modest improvement at a choppy pace in recent months, though there are fears that the recovery could be derailed. Economists worry that hiring by private companies could stall and anxiety has gripped the stock market, partly because of the European debt crisis. —AP