WFC), Citigroup ( C) and, to a lesser degree, Back of America ( BAC) have put money in the bank (cheap pun, I know), betting on the financial recovery. There is nearly zero reason to believe anything is about to change. Some concern over the housing fallout and mortgage handling is expected, and a few states are becoming more aggressive, but it doesn't change the overall landscape of support from the central banks. For example, the largest bazooka for major U.S. banks is the Federal Reserve's $85 billion QE3 with no end in sight. QE3 might more accurately be described as the "Bank Investors Protection Act" because regardless of where the economy travels from here, the banks will make money. If we drop into another full-blown recession, we already know the Fed will keep buying paper, propping up housing and removing deflation as the printing presses run full speed. On the other hand, if the Fed slows down the presses, it's only because the economy is expected to improve. Investing in banks is the closest you can come to "Heads I win, tails I break even." As The Street's Philip van Doorn smartly points out, not only are the major banks ready for Basel III, but as expected, they are adjusting for the new post Dodd-Frank regulatory environment. Actually, it may be more accurate to write that banks are ready for the "adjusted" Dodd-Frank environment. Not all the regulations from Dodd-Frank have been implemented, and some that were expected have been put on hold. More are expected (on paper) to arrive in 2014, but don't count on full implementation, because Wall Street isn't. At least not to the extent profits will take a hit. Banks will simply shift their focus from low-margin business into high-margin business. Although there's only so much gravy to go around, the largest banks are in the best position to exploit the opportunities. It's the smaller, regional banks that can expect to experience margin compression.
For example, as JPMorgan (and other megabanks) move away from student lending, smaller banks will undoubtedly step up to serve the student lending market, and it may increase the bottom line, but not overall margins. Philip van Doorn makes the argument that leaving lower-margin "safe" loans increases the overall risk banks face because of diminished diversification. I don't necessarily disagree with him, but from an investor's point of view, the risk isn't squarely on the shoulders of investors anymore. As long as the banks are considered systemically crucial to the financial health of the country/world, not only can they increase their portfolio risk profile, they should do so for the same reasons investors should buy shares, namely "heads JPMorgan Chase wins and increases profits, or tails the loans don't perform, the government injects liquidity, and JPMorgan Chase breaks even. The result may not be the original desired goal of regulators; however, as investors we want to play the hand we're dealt, and JPMorgan is a superb hand. At the time of publication, Weinstein had no positions in stocks mentioned. Follow @RobertWeinstein This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.