Whalen: If You Are Regulated by the Fed, You Are Too Big to Fail

Discussing stress test results, Christopher Whalen believes banking regulations are unfairly favoring the big banks at the expense of smaller ones. Asked on CNBC's Squawk Box whether the current regulation is asking banks to be overcapitalized, the Tangent Capital Partners Sr. Managing Director answered yes: "Remember, these test today did not talk about litigation with Bank of America (NYSE: BofA), they didn't really talk about second liens. We only have $50 billion dollars on second liens? I could haircut Wells Fargo

by that much, by themselves!" When Squawk Box guest host Steve Forbes asked whether Dodd-Frank codified too-big-to-fail, Whalen answered: "Of course yes! Look, if you are regulated by the Fed, you are too big to fail!" "We have to get the Fed out of regulation, give them a clear monetary mission, let the comptroller's office and state regulators handle that." Whalen said." Whalen pointed out that his stance made him very likable with the small bankers. "Because I say that the big banks aren't more profitable than the small banks." "How much smaller would JP Morgan

be if they couldn't count treasury tax and loan balances as core deposits?" he asks rhetorically. "They don't do that in Europe! If that was just a transaction trust account, which is what it is--your mortgage payment, payroll, those aren't deposits--it would not make JP that much bigger!" "And they were able to get a monopoly on the secondary market loans, because of servicing," Whalen notes. "Well, now Basel II says you can't be in the servicing business. You are going to see these guys get smaller."