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!

Big Bank Bashers See First Unintended Consequences

Stocks in this article: JPM BAC WFC C DFS

NEW YORK ( TheStreet) -- The exit from student lending by JPMorgan Chase (JPM) is not simply an effort by the largest U.S. bank to "simplify" its business.

It's an unintended consequence of new capital rules proposed in July to "reduce the likelihood of economic disruptions caused by problems" at the nation's largest banks. Ironically, the new capital rules are forcing the biggest banks to shy away from less risky and lower-margin businesses like student loans. That will make the big bank more risky overall, while also enhancing returns to investors, as the banks focus on higher-margin areas of business.

The Wall Street Journal on Friday reported that JPMorgan in October would stop making student loans to its customers; the bank had already stopped making student loans to noncustomers last year. According to the report, the bank is seeking to "simplify its operations amid heightened scrutiny from regulators," in the wake of the "London Whale" hedge trading losses, which in 2012 amounted to at least $6.2 billion before taxes.

But there is another major reason for JPMorgan to exit student lending and other low-risk, low-margin businesses the company was historically happy to participate in: Under regulators' proposed leverage capital rules, the largest banks will have the same capital requirement for a safe asset, like cash for example, as they will for junk bonds or risky noncollateralized loans, such as credit card loans.

Federal Regulators' proposal of new leverage capital requirements for the nation's banks on July 9 -- which came only one week after the Federal Reserve finalized its rules to implement the Basel III capital requirements -- raised required leverage capital ratios for bank subsidiaries of U.S. bank holding companies with total assets of at least $700 billion, as well as those with at least $10 trillion in assets under custody.

In addition to JPMorgan, the new rules affect the following bank holding companies:

  • Bank of America (BAC)
  • Citigroup (C)
  • Wells Fargo (WFC)
  • Goldman Sachs (GS)
  • Morgan Stanley (MS)
  • State Street (STT)
  • Bank of New York Mellon (BK)

The nation's biggest bank holding companies have shown their ability to fully comply with minimum Basel III capital requirements, many years ahead of the full Basel III implementation in January 2019. The big banks for many years have been "managing to" the Basel III requirements, which center on the Tier 1 common equity ratio -- a risk-based ratio.

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 17,877.65 +72.85 0.41%
S&P 500 2,072.05 +1.40 0.07%
NASDAQ 4,774.43 +9.05 0.19%

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