Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Bank of America Stock Is Headed Higher Despite Ominous Regulations

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

It's a brave new world for megabanks like Bank of America (NYSE: BAC  ) . And it's one in which their historically high profits (absent the financial crisis, of course) could very well be in jeopardy.

Earlier today, the Federal Reserve released the latest version of its proposed rules governing capital requirements under the international Basel III accords. The new framework narrows the definition of what counts as capital and increases the amount that must be held as a buffer against future losses.

"This framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, while reducing the incentive for firms to take excessive risks," Fed Chairman Ben Bernanke said. "With these revisions to our capital rules, banking organizations will be better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy."

Make no mistake about it: This is a positive development from the perspective of financial stability. But at the same time, it will cut into the profits of banks, which use leverage to juice their returns.

And this is particularly true for the nation's too-big-to-fail banks, including Goldman Sachs (NYSE: GS  ) , JPMorgan Chase (NYSE: JPM  ) , and Citigroup (NYSE: C  ) . According to Daniel Tarullo, the Fed governor in charge or regulation, the central bank could soon propose even higher capital ratios for banks like these, as well as Bank of America, that are considered "systematically important."

As Tarullo noted (emphasis added), "Along with the stress testing and capital review measures we have already implemented, and the additional rules for large institutions that are on the way, these new rules are an essential component of a set of mutually reinforcing capital requirements."

This is one of the reasons that the market's smartest investors have begun to cast their eyes on smaller and more ably run banks like the one identified in our free report, "The Stock Warren Buffett Wishes He Could Buy." Besides being selected as one of the nation's best banks by Forbes magazine for multiple years running, it's been a huge win for shareholders, growing consistently over the last few years and paying a generous 3.6% dividend yield. To discover the name of this bank instantly, simply click here now.

Despite the impending regulatory regime, most bank stocks are headed higher today. Bank of America is up by 0.12% at the time of writing, and the broader BKW Bank Index (DJINDICES: ^BKX  ) is surging by 0.84%.


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2520795, ~/Articles/ArticleHandler.aspx, 9/27/2016 10:15:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,144.41 49.58 0.27%
S&P 500 2,154.82 8.72 0.41%
NASD 5,282.38 24.89 0.47%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 9:59 AM
BAC $15.15 Up +0.06 +0.40%
Bank of America CAPS Rating: ****
C $46.06 Up +0.17 +0.37%
Citigroup CAPS Rating: ***
GS $161.78 Up +0.30 +0.19%
Goldman Sachs CAPS Rating: ***
JPM $66.13 Up +0.35 +0.53%
JPMorgan Chase CAPS Rating: ****