Updated with the Federal Reserve's movement of the stress test results announcement to Tuesday, JPMorgan Chase's announcement, and test results for Bank of America and Citigroup.
NEW YORK (TheStreet) -- Investors were thriled on Tuesday after JPMorgan Chase (JPM), announced it had passed the Federal Reserve's latest round of stress tests, but U.S. citizens should be proud of way the central bank is handling this regulatory role.
The Fed is required under the Dodd Frank Wall Street Reform and Consumer Protection Act to conduct an annual Comprehensive Capital Analysis and Review (CCAR) on large, complex bank holding companies.
The 19 companies required to participate in this year's CCAR submitted capital plans, including any plans to increase their returns of capital to investors through dividend hikes or repurchases of shares.The Fed takes each company's "unique risks" into account and make sure each has "sufficient capital to continue operations throughout times of economic and financial market stress." Most of the recent business coverage has focused on what is of the greatest concern to investors -- higher dividends and support for share prices through buybacks -- and for many of the stress tested banks, dividend increases are just around the corner. But a closer look at the Federal Reserve's testing methodology shows that the regulator is doing all of us a huge favor. 9 Oil, Gold Stocks That Rise on Bad News
Many of the regulatory changes springing from Dodd-Frank have been ridiculed, including the Volcker Rule, and its ill-defined ban on "proprietary trading," which is causing a talent exodus from major banks, including JPMorgan Chase as investment managers and buy-side analysts leave in droves, as the banks wind-down their private equity investing and become less competitive internationally. Another deserving target for scorn is the farcical Dodd-Frank mandate that large banks and bank holding companies draw up resolution plans for a rapid resolution of their assets, in the event of failure. These "living wills" can't work, because in a stressed and illiquid market, there won't be any quick buyers the assets of a systemically important bank that is failing. After Tom Brown of Second Curve Capital said in December that he had suggested to Bank of America board of directors member Chad Gifford that the company consider selling part of its branch network -- with the company's Texas operations given as an example -- as a way of showing the market that the company's assets really were worth more than the fraction of book value the stock was trading for, the Wall Street Journal on Feb. 17 reported that the company might indeed consider a Texas sale if it were to come under severe stress.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV