Why the long-awaited results are meaningless.
—By Nomi PrinsFri May 8, 2009 6:10 AM PSTAfter weeks of suspense, the Federal Reserve revealed the results of its bank stress tests Thursday—as if they actually meant something. The Fed claimed to have conducted a rigorous investigation of the nation's 19 biggest banks to determine which ones would need more capital in the event of further economic woes, like a spike in unemployment or a dip in home prices or GDP. And according to Fed chairman Ben Bernanke, we should take "considerable comfort" in the results. But don't be fooled by the drama: All the stress tests did is hand the banks a free pass for further federal aid.
The tests were a meaningless exercise in numerous ways. For starters, the results were predictable—the 10 banks that need more capital were obviously still struggling. Nor was there a big mystery about how much capital they required: There are rules that determine the amount of money banks should set aside to cover their risks, and had those rules been enforced, the institutions wouldn't now be dependent on the public dime. What makes the hype over the stress tests so galling is that the Fed should have been doing this kind of monitoring all along.
After weeks of suspense, the Federal Reserve revealed the results of its bank stress tests Thursday—as if they actually meant something. The Fed claimed to have conducted a rigorous investigation of the nation's 19 biggest banks to determine which ones would need more capital in the event of further economic woes, like a spike in unemployment or a dip in home prices or GDP. And according to Fed chairman Ben Bernanke, we should take "considerable comfort" in the results. But don't be fooled by the drama: All the stress tests did is hand the banks a free pass for further federal aid.
The tests were a meaningless exercise in numerous ways. For starters, the results were predictable—the 10 banks that need more capital were obviously still struggling. Nor was there a big mystery about how much capital they required: There are rules that determine the amount of money banks should set aside to cover their risks, and had those rules been enforced, the institutions wouldn't now be dependent on the public dime. What makes the hype over the stress tests so galling is that the Fed should have been doing this kind of monitoring all along.
No comments:
Post a Comment