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JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC), And A Key Question: Should ‘Too Big to Fail’ Be Done Away With?

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J.P. Morgan Chase: a whale of a bankA new bill moving through the Senate aims at restricting big banks’ ability to risk on the taxpayers’ dime.

Image: JPMorgan Chase & Co. (NYSE:JPM)

At least that’s what the bill’s sponsors say. Senators Sherrod Brown (D-OH) and David Vitter (R-LA) have proposed that large banks – those with more than $500 billion in assets – be required to maintain capital equal to 15% of their assets at all times. If a bank has between $50 and $500 billion in assets it would have to maintain capital reserves of at least 8% of assets. The act is designed to ensure that such banks would never again need taxpayer bailouts after losses like the those during the recent financial crisis.

The big banks are, of course, screaming like stuck pigs. Industry groups are saying that new, voluntary controls that were put in place after the collapse already provide a guarantee and that legislation isn’t necessary. Senator Brown has stated that if the large banks don’t want to be governed by the bill they can reduce their assets until they are no longer regulated by it. Unsurprisingly, the industry doesn’t find that statement comforting. The idea of restricting the amount of money that banks can lend – and therefore raising interest rates marginally for available lending – is enough to anger them.

Truly too big?

The act is broadly written, but in the end it comes down to just a few banks that have earned the ire of the taxpayers – and therefore Brown and Vitter.

JPMorgan Chase & Co. (NYSE:JPM) is one. Five years after the collapse and JPMorgan Chase & Co. (NYSE:JPM) is now insisting that the company didn’t need a bailout back in 2008 and 2009. Still, rock star CEO Jamie Dimon’s firm did accept both loans and TARP money during that time after risky loan losses placed the bank on shaky ground. Last year’s enormous trading loss didn’t make the case that the bank was behaving better. Still, there’s solid share growth of 57% since last June and 2012 net profit of 21.94%.

Bank of America Corp (NYSE:BAC) is a shakier bank than JPMorgan Chase & Co. (NYSE:JPM). Not that it’s in danger, really. But it didn’t come out of the banking crisis in near as good shape. The bank took more than $40 billion through TARP and received guarantees that the government would help with $119 billion in potential losses on bad loans the firm made. Toss in the ongoing troubles with the acquisition of Countrywide and 2010 accusations of fraud in how it handled some muni bonds and it’s been rough. Still, even through that, the bank has seen solid profitability and share growth. While only seeing a net margin of 5.03% in 2012, shares still grew 47.25% over the last twelve months. I’d take JPMorgan Chase & Co. (NYSE:JPM) before Bank of America Corp (NYSE:BAC), sure, but I wouldn’t turn away from it either.

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