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 Follow @AntoineGara
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