Jeff Braun of the The Market Guardian recently wrote a post on the release of results from the financial institution "Stress Test." So how will these reports affect the market? Leave us a comment and let us know what you think the ultimate outcome of these results will be.
News came out on April 15th from the Federal Reserve that they are going to release the results of the 19 bank stress test in early May. They used the tests to determine whether the top 19 banks have sufficient capital to cover loan losses during the next two years if the economy continues to shrink, unemployment surges and housing prices keep slipping lower.
Could the results cause a major panic and a run on some banks? It is hard to say but once Wall Street perceives some of the firms as being significantly troubled, the sell-offs in their stocks could be fast and furious. Low share prices will of course mean more dilution when capital has to be raised. The perception of the banks that fall into the group of the “weak” may not recover from the news. And, the whole process will inevitably raise the question of what will be done to the most troubled banks.
Ok Seriously, our government is going to make each and every large bank whole come hell or high water. They say “in a systemic way” so in my opinion that means the government will reveal the stress test results depending upon market conditions during that time. These stress tests are nothing more than applying economic projections of growth, employment, consumer spending, loan losses, etc. Given the fact that our beloved leaders have been chanting “recovery in the future”, the banks will not be “stressed” at all by this government data.
“The Secretary and the Department of the Treasury have long recognized that transparency was important for taxpayers, important for the banks and important for the overall stability of the financial system,” said White House spokesman Robert Gibbs. “And I think that’s what you’ll see.”
Hey Robert Gibbs please give me a break. They conduct a “stress test” way too late in the game. What are they going to say now that they’ve handed out Hundreds of Billions to the banks? Sorry BAC, but you have failed the stress test and now we have to close your doors tomorrow. This stress test is designed to create confidence in the banking system, not to uncover insolvent institutions. Do you think they are going to show the over $130 trillion of toxic derivatives sitting in the basements of these banks? Of course not! This seems like just one big sham to me.