This autumn, many US banks reported a respectable improvement in earnings for the third quarter: more than 80 percent of the largest beat the market’s consensus forecasts, and a similar proportion showed year-on-year increases. The second quarter was equally impressive. So why have the stocks of large banks declined by more than 20 percent since the beginning of the third quarter—nearly three times more than the broader stock market—to the point where four out of five now trade below book value?

Many commentators blame Europe’s sovereign-debt crisis and fears of a double-dip recession. But three additional factors also weigh heavily on investors: the new bank capital requirements introduced under the Basel III international-banking regulations, the impact of new US banking regulations responding to the financial crisis, the Dodd–Frank Act, and the unwinding of consumer debt. All three undermine banking’s traditional business model.