How Regulations Are Encouraging a Return to Complex Derivatives

No one likes a bailout, particularly one caused by taking a simple and valuable business -- like, say, home loans -- and turning into a complex labyrinth of indecipherable derivative contracts.

Unfortunately, regulations aimed at preventing such a bailout in the future are instead incentivizing banks to once again transform simple business loans into complex collateralized loan obligations (CLOs). 

Mega banks like JPMorgan Chase (NYSE: JPM  ) , Wells Fargo (NYSE: WFC  ) , and Citigroup (NYSE: C  ) are leading the trend, finding clever loopholes in the regulations to bypass capital rules and go back to business as usual. In the video below, Motley Fool contributor Jay Jenkins explains exactly what these banks are doing and why, highlighting the folly of today's regulatory reforms.

Many investors are terrified about investing in big banking stocks after the crash, in many cases because of the complex derivatives hidden like land mines on bank balance sheets. There is, however, one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.


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