JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC), BB&T Corporation (BBT): Feds Play Hardball With the Big Banks

In relatively simple terms, banks are required to assume a number of possibilities that can adversely affect the value of their assets and calculate the worst-case losses. The banks must then factor those losses into regulatory capital requirements.

While the big banks have raced to meet the new capital requirements, the Fed’s announcement noted significant shortcomings were found in the banks’ responses to the stress tests. In other words, this could be the Federal Reserve’s “shot across the bow” that capital requirements could be made even tighter as the definition of “qualifying assets” is revisited.

The bottom line for ordinary investors
So, what’s an ordinary investor to do? Good question.

All of this news might be more worrisome if the banks were on shaky ground regarding their fundamental strength. However, banks have been performing well in 2013 despite these numerous legal speed bumps.

A continuing series of settlements will take small bites from the banks’ profits. But the troubles posed by these incessant legal and regulatory dust-ups are mainly intangibles that may adversely impact the banks’ reputation, as opposed to their financial strength. The black eyes on the images of these players could ultimately move directors to shuffle the executive deck.

But if the SEC prevails in getting JPMorgan Chase & Co. (NYSE:JPM) to admit wrongdoing, this could be a watershed moment in how federal regulators pursue civil actions, and it could open the door to criminal charges being brought for these repeated violations of securities law with greater frequency. And this is something all investors should consider.

The article Feds Play Hardball With the Big Banks originally appeared on Fool.com and is Kyle Colona.

Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and JPMorgan Chase

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