The CCAR Review: Financial Stability Achieved

We did it! Banks have finally crossed the Rubicon of financial stability. Did you feel a disturbance in the force on Wednesday? That’s because the Federal Reserve Board announced it had completed its review of the nation’s largest banks and had no issues with the capital plans of all 34 institutions.

CCAR stands for Comprehensive Capital Analysis and Review. Its purpose is to evaluate the capital planning processes and reserves for large banks in the U.S. It was implemented seven years ago, after the dark days of our economic crisis, when we learned that banks were bad. The process was mostly born because the government “bailed out” these banks and needed to create some form of activity to help them sleep at night.

“I’m pleased that the CCAR process has motivated all of the largest banks to achieve healthy capital levels and most to substantially improve their capital planning processes,” said Governor Jerome H. Powell. That’s a really optimistic way to look at it. These were, after all, federal regulations. That’s sort of like saying, “Once we started handing out tickets, drivers were really motivated to drive the speed limit.”

Impact on Bank Shareholders: Dividends and Buybacks

So, what does this mean for bank shareholders? Dividends and buybacks. For the past seven years, the Federal Reserve has required these institutions to set aside profits to meet capital requirements. This has cut into the distributed profit, but that’s all gone now.

The timing of the whole thing is interesting. The current administration is definitely for deregulation. At the same time, the Federal Reserve relaxed the qualitative assessments in CCAR and everyone passed. If things change for banks and regulations are removed, then the past seven years becomes an exercise in forcing the banks to save up and then letting them loose in a candy shop.

Nike’s Shift: Partnering with Amazon

Nike has been holding out against online retailers like Amazon for some time. Curated brands like Nike and The North Face have eschewed the online retailer for years because Amazon refuses to conform to their requirements for distributors.

That doesn’t mean you can’t buy these products on Amazon.com, it just means you can’t buy them directly from the retailer. In fact, Nike is the most purchased apparel brand on Amazon, according to research from Morgan Stanley. Anyone can sell things that they have purchased legally for any price they want on Amazon, leading companies that have avoided Amazon to reconsider.

A recent deal between the two companies will change that for Nike. Interestingly, part of that deal requires that Amazon block third parties from selling Nike apparel on the site. That’s an odd move.

I would assume that people were purchasing Nike on Amazon for the sole purpose of buying it from third parties. I don’t think these people are having a difficult time finding Nike’s actual website. Purchasing goods from Nike at full price seems like a fairly straightforward activity. The genius of Amazon was that it made it easier to buy goods from Nike at a discount, from third parties. Selling their goods on Amazon and paying fees to Amazon dilutes Nike, and removing more affordable resellers from the platform dilutes Amazon. This is the textbook definition of a lose-lose scenario. Sure, Amazon makes money from Nike in the short term but that’s not really the point of a company that can barely turn a profit.

A Pop Culture Surprise: Transformers and Harriet Tubman

I don’t normally talk about pop culture here except for that one time when Britney Spears reminded me of bond trading, but this week I read this: “Did the Transformers Do Enough to Aid Harriet Tubman?” and I had to share it with you. Wow.

A much-beloved pastime of mine is to analyze movies, and I have achieved a somewhat amateur film critic status at the office. I don’t tell people if films are good or bad per se, I just criticize them. For instance, in the film “Home Alone,” Kevin McCallister’s parents can’t call the house because the phones are down, but Kevin still manages to call the pizza company and order pizza. How?!

Anyway, the writers of Transformers have made a tactical error. They have referenced in the film a concept (that Transformers helped Harriet Tubman) that would make a MUCH BETTER FILM. The article asks the obvious question, “Did the Transformers do enough to end slavery?” As bizarre as it is, all I want at this point is to watch that movie.

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