Today we welcome Assistant Portfolio Manager at Fidelity Global Finanical Services Fund, Lee Sotos, as dives into the financial sector and gives an overview of the effect of regulations on banks. He says the regulations involve increasing capital by 20 per cent in risk-weighted assets to slow lending. Banks are adapting to higher regulation but are not completely closed off to lending. They are exploring other forms of income and deposits and not just focusing on loans. Regional banks are trying to keep up and compete with larger banks. They face extra macro-prudential regulation if they have over 100B in assets. They participate in more stress tests and follow more liquidity rules. He adds that there are opportunities in the banking sector, especially for banks with stable deposit bases and better capital situations. And big banks offer diversification in deposits, loan books, and revenues. Lee also points out that despite the potential risks of higher rates or credit losses, banks are already reserving for credit issues, positioning themselves well for any downturn.

Recorded July 28, 2023.

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