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Dodd-Frank regulations help Goldman Sachs gain market share

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Beltway Confidential,Opinion,Timothy P. Carney,Goldman Sachs,Dodd Frank,Wall Street

"We will be among the biggest beneficiaries of reform,” Goldman Sachs CEO Lloyd Blankfein said of the 2010 Dodd-Frank financial regulation bill, which was supposed to be a broadside to Wall Street.

Today, we get a hint how Goldman benefits: Regulations crowd out competitors, giving Goldman a bigger share of the regulated markets.

Here's Bloomberg News on the commodities market:

"Goldman Sachs Group Inc. ... is poised to gain market share as pressure from regulators drives competitors to scale back. ...

'The more banks that exit commodities trading, the less competitive it becomes for the banks which stick with it,' Jeffery Harte, an analyst at Sandler O'Neill & Partners LP, said in a phone interview. Goldman Sachs has 'the bigger franchise to be a winner. It now has a much bigger piece of a much smaller pie.'"

Some commodities regs are coming via Dodd-Frank.

Financial regulation protecting the big guys and causing consolidation is a pattern. Recall this from JPMorgan CEO Jamie Dimon:

"In Dimon’s eyes, higher capital rules, Volcker, and OTC derivative reforms longer-term make it more expensive and tend to make it tougher for smaller players to enter the market, effectively widening JPM’s “moat.” While there will be some drags on profitability – as prices and margins narrow, efficient scale players like JPM should eventually be able to gain market share."

Small banks fear the "Walmartization" of banking thanks to Dodd-Frank, the Columbia Business Times reported last year. The Investigative Reporting Workshop wrote earlier that financial regulation would drive consolidation in the industry.

Here was Michael Hirsch at Newsweek making the same point, citing a former Treasury official:

"[B]y imposing new capital charges that will create barriers to entry for new firms, especially in swaps and other derivatives, while at the same time permitting giant bank holding companies to continue controlling most of what they were before, 'we’ve consolidated the position of the five banks that were most central to the crisis,' the former Treasury official says—in other words: J.P. Morgan, Goldman Sachs, Bank of America, Morgan Stanley, Citigroup, along with, currently, Wells Fargo. 'In my mind,' he says, 'they’ve created six new GSEs,' or government-sponsored entities like Fannie Mae and Freddie Mac."

And the law may institutionalize bailouts, according to the WonkBlog report.

The law has its plusses and its minuses, but here's a good question to ask: Is the economy more or less fragile with fewer, bigger players in the financial sector?

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