The Federal Reserve wants to make sure that the banks like Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) are thick-skinned the next time they witness a financial crisis like the one in 2008. Therefore, on Wednesday, it gave an alert to the U.S. banks to be ready to face tougher stress tests than before. The Fed’s governor, Daniel Tarullo, who also heads the regulatory matters at the bank, said that the stress test focus will be more centered towards macro elements like the risk contribution of each bank in the financial system. Commenting the Fed’s move, Cole Smead, managing director at Smead Capital Management, shared his thoughts on CNBC as why the Fed’s decision is not a point of worry for the U.S. bank giants.
No Point Of Fear
Smead said that this tough stress tests are introduced both in the U.S and European banks and big banks like Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) have great economics in their business, they have strong businesses involved and yet no one likes them, including the regulators. At the same time, the consumers and other people associated categorize them in a truly bad sense.
“We are not likely have an era where people will be more overly enthusistic about overpricing these financials; and secondly, the stringency on the underwriting is exactly what you want at the early stages of a great economic period in the United States. And if you go back and look, to be an equity investor at the early parts of this is quite a thing. We are five years into this and we are still dealing with 67 years old problems. We own Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM); so if there was any reason to fear those big players, we don’t see it.”
Investment Banking Opportunities
Smead further supported his beliefs by stating that people often consider the bank’s inability to lend money off their balance sheet as negative, but on the contrary, that implies a lot of investment banking opportunities.