The Sinister Side of Basel III

The Sinister Side of Basel III

No one likes a bailout, and regulators have been working hard to prevent a repeat of the taxpayer-funded debacles of 2008 and 2009. Their solution? More capital. A lot more capital.

The hope is, of course, that with more capital, systemically important banks like Wells Fargo and JPMorgan Chase will be able to withstand any losses with equity on the balance sheets and not require taxpayer money. The obvious trade-off is that return on equity targets will be more difficult to hit, even for regional banks like BB&T , Regions Financial , or KeyCorp .

As is most often the case, its not the obvious consequences that will cause the most harm, its the unintended consequences. In the video below, Motley Fool contributor Jay Jenkins highlights some risks lurking in the shadow behind the rising Basel III capital requirements.

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Fool contributor Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of JPMorgan Chase, KeyCorp, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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