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Meredith Whitney: Financial Giants Turning Into 'Zombie Banks'


"The large banks which dominate most of the lending in the United States are effectively zombie banks," she said. "You've got an expense structure that just doesn't match the revenue structure. So it's a classic issue of negative operating leverage. You don't buy institutions that have negative operating leverage. This is a multi-year cycle that these guys will have to go through." She said the term applies as well to stressed European banks such as Societe Generale that were sustaining heavy losses Wednesday amid credit concerns. Getting back to normal probably will take large institutions, such as Bank of America [BAC 7.11 0.34 (+5.02%) ], 10 years as they cope with a new regulatory environment that will demand banks change focus and cut size, Whitney added. Following the financial crisis in 2008 and 2009, Congress took a scalpel to banking regulations, passing the Dodd-Frank reform law that requires the winddown of too-big-to-fail institutions, raises capital requirements and implements broad changes to fee structures.

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