Regional banks could become less profitable because of increased regulation according to Meredith Whitney. Whitney, a financial analyst, brought up the possibility of having nearly 5,000 branches cut due to the financial reform in an interview with CNBC.

Foreclosure Crisis Causes Problems

While the government’s financial reform measures put a strain on regional institutions, the foreclosure crisis could be the final straw. As the housing market slowly recovers from foreclosure freezes, the consequences of the crisis are expected to last a long time. Properties that are under investigation by individual banks will not be sold, a fact that negatively effects the housing market and consequently impacts the banking industry.

Whitney believes that these problems are bound to last years and years before there is any relief for the banks involved: “You’re going to have decades of lawsuits on people buying securities and being left with stuff they didn’t intend to buy.”

GOP May Not Have Solutions

After the Republicans took control of the House of Representatives, some were hoping to see changes in the way the government was handling financial regulations. The problem at this point is the reforms that have already been put in place have caused banks to become less profitable and in order to cut costs most banks could begin closing regional branches.

Even with their history of business-oriented regulation and good relationship with the financial industry, Republican lawmakers do not have much to work with in terms of turning around profits for banks, given the fact the Senate is still controlled by Democrats.

Meredith Whitney, president of Meredith Whitney Advisory Group, discusses Finances and Politics (courtesy of CNBC):

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