This Day On The Street
Continue to site
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

The Fed's Supreme Confidence in U.S. Banks

If there was a credit bubble, mostly perceived to be outside of the banking system, Stein and Bernanke's comments could both be true.

Data supports such a view.

Amid a surge in bond yields, the nation's largest commercial banks have seen their shares perform steadily, even as analysts and ratings agencies begin to model in significant securities portfolio writedowns.

The same cannot be said for other prominent bond buyers, for instance, highly levered real estate investment trusts (REITs) or high yield bond funds.

Shares of mortgage REITs such as Annaly Capital (NLY) and PennyMac (PMT) have fallen sharply since Bernanke's June 23 comments. Bond exchange traded funds (ETFs) such as the SPDR Barclays Capital High Yield Bond fund (JNK) have similarly suffered.

In his February warning call to credit markets, Fed Governor Stein mentioned junk bonds used to finance leveraged buyouts, bond ETFs, agency REITs and AFS holdings of large banks as some areas where systemic asset bubbles could form outside the Fed's regulatory power. As long-term interest rates have risen from near-record lows, all have taken a hit.

However, according to Stein's recent statements, the issue hasn't spilled onto bank balance sheets in a way that might meaningfully hurt the financial system. In that sense, Stein's belief that the central bank's bond buying hasn't been undermined, expresses confidence in the standing of the nation's largest banks.

Furthermore, many see the market move as beneficial to large lenders like Wells Fargo and JPMorgan.

For example, a rise in mortgage rates spurring losses on banks' AFS portfolios might push them to slow their securities buying and increase their lending, Fitch Ratings financial institutions managing director Joo-Yung Lee said in June.

While rising interest rates will invariably cloud second-quarter bank earnings, they may prove more of a long-term benefit for banks.

JPMorgan, Wells Fargo Shuffle Riskiest $38 Billion Amid Bond Boom

-- Written by Antoine Gara in New York

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.13 -1.60%
C $44.66 -2.00%
JPM $61.57 -1.58%
WFC $48.94 -1.37%
AAPL $94.19 -1.04%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs