Wall Street has benefited from Fed policy, while Main Street struggles to make ends meet. Family incomes have declined while the cost of living rises. Higher U.S. Treasury yields are not being passed on to savers. With the yield on the U.S. Treasury five-year note at 1.50%, five-year CD rates at the major banks in Tampa Bay are between 0.20% and 1.00%. Before the Great Credit Crunch bank CD rates were usually higher than the yield on Treasuries.
At the same time the 0.0% to 0.25% funds is not helping consumers who face credit cards rates as high as 24.9%. Small business, the key to sustained economic growth at the local level, face higher rates on lines of credit from 5.25% as the credit crunch began to 9.25% today.
The shenanigans of Wall Street has banking regulators including the Federal Reserve and the Federal Deposit Insurance Corporation keeping their eyes and ears on the bigger banks as the banking systems face several issues in 2014.
Banks will likely face tougher stress test parameters in 2014 as the Federal Reserve may use its own estimates on the effect that a recession would have on bank balance sheets. As I have shown in a recent post on Dec. 3, Four Too Big To Fail Banks Set Multi-Year Highs the big banks control a larger share of the assets in the banking system at the end of the third quarter of 2013 then at the end of second quarter of 2008 when the Great Credit Crunch began. This could force the Fed to require banks to increase capital and limit dividend payouts.Then there's the Volcker rule that will likely ban or significantly limit proprietary trading. The big banks say that strict rules to limit risk taking could cost them billions as activities such as market-making, underwriting and hedging. In my days as a market-maker in U.S. Treasuries you needed to have a market bias in a proprietary book in anticipation of the flow of business you expect from your institutional clients. Quite often if I bought or sold a treasury bond I would offset that risk with a hedge in a different maturity note of bond. In my opinion, the riskiest form of shenanigans is in the world of derivatives. At the end of 2007 the FDIC Quarterly Banking Profile showed exposures of $166.1 trillion in notional amount of derivatives. At the end of the 2013 third quarter this exposure has grown 46.2% to $242.9 trillion. Our regulators should take action to limit risk in this category of exposures by raising margin requirements and only allowing positions in contracts and structures that can be marked to market instead of marked to myth. Here are my buy-and-trade profiles for the seven big banks that service the communities in Tampa Bay: All seven have hold ratings according to www.ValuEngine.com with overvalued readings between 16.2% and 38.8%, and with gains of 21.8% to 38% over the last 12 months. All are trading above their 200-day simple moving averages which reflect risk of a reversion to the mean. Bank of America (BAC) set a multi-year intra-day high at $15.98 on Nov. 25 and traded as low as $15.06 following the Fed Statement. The 50-day and 200-day SMAs are $14.81 and $13.75 with a quarterly pivot at $15.30 and monthly and annual risky levels at $16.03 and $17.07.