NEW YORK – Bank stocks shot higher Friday after an agreement on a financial regulation bill reassured investors that new rules won’t devastate financial companies’ profits.
Banks outdistanced the rest of the market after congressional negotiators agreed on a bill that increases the regulation of financial companies, but that doesn’t include some of the harshest provisions that the government originally proposed. The legislation imposes new rules on the complex investments known as derivatives, but the rules aren’t as strict as investors feared.
It also includes a far milder version of what’s been called the Volcker rule. That rule, named after former Federal Reserve Chairman Paul Volcker, would have banned commercial banks from trading simply to increase their profits, a practice known as proprietary trading.
Analysts said the deal removes a huge cloud that has hovered over the financial industry for much of this year. Investors have feared that intense regulation would devastate bank profits. Now, the market seems to believe that financial companies would do well even with the new limits on their business.
“They come out of this big-time winners,” Bob Froehlich, senior managing director at Hartford Financial Services, said of financial companies. “Two years later, people will look back and say ‘My gosh, nothing really changed.’”
Banks were the market’s big performers on a day when the Dow Jones industrial average fell almost nine points and the other major indexes had only slim gains.
Goldman Sachs Group Inc. rose 3.5 percent, while JPMorgan Chase & Co. gained 3.7 percent. Bank of America rose 2.7 percent and Citigroup Inc. rose 4.2 percent.
The legislation also allows banks to invest only up to 3 percent of their capital in private equity and hedge funds. That is a remnant of the original Volcker rule.