This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Banks' Dividend Gravy Train Charges Past Regulators

Stocks in this article: JPM BAC C WFC MS

Updated from 9:50 ET with morning market action and comment from Goldman Sachs's equity research team.

NEW YORK ( TheStreet) -- Most bank stocks were up on Tuesday, showing investors' relief that the regulators didn't follow the lead of Senators Brown and Vitter, who in May proposed a radical 15% Tier 1 leverage requirement for the largest U.S. banks.

Bank stocks were weaker on Wednesday morning, with the KBW Bank Index (I:BKX) down 1%, although that may be reaction to China's report that its exports during June declined 3.1% from a year earlier.

Despite federal regulators' move on Tuesday to greatly increase leverage capital ratios for large U.S. banks, the key factor in banks' capital deployment decisions will be the Federal Reserve's annual stress tests.

Just one week after the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. issued their final rules to implement the Basel III capital standards for U.S. banks, the three regulators on Tuesday doubled the minimum Basel III supplementary Tier 1 leverage capital requirement for the nation's largest financial institutions.

Under Basel III, banks are required to have minimum Tier 1 leverage ratios of 4%, but large, systemically important banks are required to perform a separate supplementary Tier 1 leverage ratio calculation that incorporates off-balance-sheet items. The minimum requirement for this supplementary Tier 1 leverage ratio is 3%.

Except for U.S. banks. The federal regulators have proposed requiring U.S. banks with total assets in excess of $700 billion to maintain supplementary Basel III Tier 1 leverage ratios of 6%. For large U.S. bank holding companies, the minimum ratio is 5%.

The Basel III capital standards and the Fed's annual stress tests for large banks focus on Tier 1 common equity ratios, which are risk-based ratios. This means that assets are weighted by perceived risk, with cash, for example, having a zero risk rating. So a bank's Tier 1 common equity ratio is always higher than its Tier 1 leverage ratio, or its supplementary Tier 1 leverage ratio.

The new rules proposed Tuesday are subject to a 60-day comment period. The rules are to be phased in beginning in 2015, with full compliance required by January 2018.

At this point in the long phase-in of Basel III, investors may be frustrated at another regulatory monkey wrench one week after the final rules were issued. After all, the large banks were all in full compliance, or close to compliance with the Basel III Tier 1 common equity ratio requirements years ahead of the deadline.

Guggenheim Securities analyst Marty Mosby on Tuesday said "the regulators want to make sure that the large-cap banks don't get too comfortable with where their capital requirements are... This leaves some uncertainty out there to encourage them to be more conservative in their deployment of capital."

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs