Most people questioned the viability of the “Stress test” performed a few months ago. What was the standard used and how realistic was the Federal Reserve in the estimates used. Turns out a big factor in the test was unemployment, and thus far, the unemployment numbers are significantly worse than what was expected as a “worst case scenario”
Take a look at this graph Calculated Risk put together:
Now U.S. regulators are waking up to the fact that “woops, we messed up” and are suggesting yet another stress test.
In a report released Tuesday, the Congressional Oversight Panel for the government’s $700 billion financial rescue effort found that the Federal Reserve used a “conservative and reasonable” approach to assessing the health of the nation’s biggest banks.
But, the panel added, the Fed’s worst-case scenario does not go far enough. For example, the “stress tests” conducted by the Fed were based on the 2009 unemployment rate average of 8.9 percent. Unemployment in May climbed to 9.4 percent.
“While no one should gainsay the potentially positive results of the tests, it would be equally unwise to think that those results reflect a diagnosis of all of the potential weaknesses or create a necessarily sufficient buffer against future reverses for the banking system,” the panel wrote.
Now, here is my big question – if banks are all of a sudden able to pay back their TARP loans, and the financial sector is no longer in collapse (as the Fed would want us to believe), why is it the government is pushing for another stress test?
How about a poor earnings across the S & P and this is a proactive measure. Maybe. What about regulators simply doing their job. Possible. Could it be that the economic situation is much more dire than anyone is willing to admit? Likely.
Related posts:
- The bank stress tests don't mean a thing Since the announcement that the federal government was going to...
- Boy, what do you think this means – US to delay bank test results If you think back several weeks with me, you’ll remember...
- Banks to stay quiet of “stress test” results, but is it legal? Over the last week two distinct stories about the bank...
- Big surprise: Banks need $75B more in order to be “safe” At 5:00 PM this afternoon, the bank “stress test” results...
- Another Nouriel Roubini stock market and economic warning While I had originally doubted Nouriel Roubini, I have come...
Related posts brought to you by Yet Another Related Posts Plugin.