It was a great day for banks on Wednesday, while all the big banks were up, leading the financial sector as the big winner. Up +2,27%. All the banks on my screen is in green, and the most active bank shares are JPMorgan Chase & Co, Bank of America, Citigroup Inc and Wells Fargo & Co.
JPMorgan Chase & Co reported a quarterly profit that topped low market expectations. The drop in profit was the first in five quarters, but investors was focusing on the positives and pushed the bank stocks up. Not only JPMorgan Chase & Co, but also its competitors.
Banking regulators like Federal Reserve and the Federal Deposit Insurance Corporation gave a failing grade to five big banks on Wednesday, on their plans for a bankruptcy giving them until October 1 to make amends or risk sanctions.
According to Reuters, this could end with braking up the banks, and it underscore how the debate about banks being «too big to fail» continues to rage in Washington. This is the first time regulators have issued joint determinations flunking banks` plans, commonly called «living wills».
If the banks do not correct serious «deticiencies» in their plans by October, they could face stricter regulations, like higher capital requirements or limits on business activities.
The requirement for a living will was part of the Dodd-Frank Wall Street reform legislation passed in the wake of the 2007-2009 financial crisis, when the U.S government spent billions of dollars on bailouts to keep big banks from failing and wrecking the U.S economy.
The plans they have are separate from the Fed`s stress tests, where banks demonstrate stability by showing how they would withstand economic shocks in hypothetical scenarios.
«The FDIC and Federal Reserve are committed to carrying out the statutory mandate that systemically important financial institutions demonstrate a clear path to an orderly failure under bankruptcy at no cost to taxpayers,» FDIC Chairman Martin Gruenberg said in a statement.
«Today`s action is a significant step toward achieving that goal.»
Thomas Hoenig said the plans show that no firm is «capable of being resolved in an orderly fashion through bankruptcy.»
«The goal to end «too big to fail» and protect the American taxpayer by ending bailouts remains just that: only a goal.»
The biggest banks doesn`t have any plans for themselves if a new financial crisis are turning into panic and chaos, which means, if the panic hit the market today, the government need to prop up the banks called «too big to fail» if they want to avoid financial chaos.
Democratic president candidate Hillary Clinton said regulators need to break big banks apart if they don`t fix their living will problems over time. Bernie Sanders, said on Twitter that many banks have only gotten bigger since they were bailed out during the financial crisis.
One of them is obviously not Citigroup. They have cut more than 26% of its assets since its peak in 2007. Citiygroup was the largest U.S bank but is now ranked number 4 (ranked by assets).
The regulators continue to assess plans for four foreign banks labeled «systemically important» and that is Barclays PLC, Credit Suisse Group, Deutsche Bank AG, DBKGN.DE, and UBS Group AG. Citigroup`s living will did pass, but regulators noted it had «shortcomings.»
I will look for Citigroup`s report on Friday.
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