Latest Stress Tests Are Expected to Show Progress at Most Banks

The Federal Reserve this week will release the results of its latest stress tests, which are expected to show broadly improved balance sheets at most institutions.

Comments: 35

  1. Does anyone really expect the Fed to report the truth about these banks? I think it is like the pot reporting on the kettle. The banks are still in bad shape now, but it would blow things wide open again, if their weaknesses were widely known. They simply do not have enough collateral, nor are they able to know the extent of the damage of swaps and dirivatives exposures.

  2. How do you know the banks are in bad shape? Do you have access to inside information about the banks? If you don't, then making such a comment as you did might be considered a bit reckless.

  3. Assuming any of these so-called tests are accurate, could it also be that the banks are being much more diligent in their loaning practices? Hmm, perhaps if they did that in the first place, we wouldn't be having this ongoing discussion today.

  4. Without a return to the Glass-Steagall Law of 1933, all of this is just creative corruption. There are so so many loophloes in current solutions, its a complete waste of air and paper. The abnks will screww the economy again very soon, as predicted by David Stockman, Krugman, and others.
    We have to completely get rid of the current GOP, as they are the stick in the wheel of reform, common sense, and honesty.

  5. Lets not forget that the Federal Reserve has been keeping interest rates at near zero for the past two years to drive this rebound. Hard for a bank to not make money when their funding costs are almost zero. Meanwhile the American savers have been the ones paying for this recovery.

  6. "Latest Stress Tests Are Expected to Show Progress at Most Banks"

    Well of course they are! Isn't that what they are designed to do?

  7. I'm certain the "stress tests" will show whatever they're SUPPOSED to show. Data will be forced to fit a pre-conceived conclusion, which will be dutifully reported as reliable fact by the media corporations.

  8. Very important? No really as evidenced by the number of comments. Banks are doing well. Great news. Because of the new debt-to-credit ratio most of us are unable to re-finance our houses for the lower rate. A lower rate the banks really did not want us to have and made sure we did not.

    And why does that debt-to-credit ratio have such an impact? Could it be that so many of us (numbers please all you investigative reporters) have maxed out our credit cards to keep afloat during this last long 'great recession'. I've never missed a payment on any credit card yet I'm charged penalty rates of 29% interest.

    The real economic crisis, much like our profitable wars, goes on and on and on.

  9. What's really the point? If the tests reveal that these institutions are as "healthy" as we've been led to believe, everyone will congratulate themselves on how well the system works as banks follow the airline industry model of diminishing services while increasing fees; if the tests indicate that the banks are once again heading toward failure, the Fed/Treasury will once again open the bailout spigot to save the big banks, proving once again that the system works. The bonuses will continue to flow, no senior banking executive (the ones who admitted they didn't really know what they were doing priorto the last "crisis") or members of the Board of Directors will be held accountable (let alone lose their jobs or be indicted for criminal misconduct). Why not stop pretending that things have fundamentally changed. Wall Street rules!

  10. My point of view is the public has been fed twisted news to give us a false sense of security. The unemployment stats are based on figures from the DOL; what about people who can no longer claim or gave up? "The US is drilling for oil" but new drilling and pipeline project are blockaded. When will the truth be published?

  11. How can they not show that some money is made when they borrow at Zero? The Reality, factors fudged: Are those mortgage derivatives back on the balance sheets; how's that foreclosure inventory moving? Shell Games always pass Stress Tests. Right Geithner?

  12. Interlocked directorsip rules and entirely suppresses dissent from shibboleths like the notion that depriving people of income from savings stimulates the economy.

  13. Hello

    Related to this article about banks and their influence

    Can anyone answer the following question, "Is the low interest policy of the FED to protect banks only at the expense of all other fixed income savers"?

    Just wondered, every person and institution that used to depend upon a fixed rate of return is now at the mercy (and far greater risk) of the markets, basically killing off pension funds, local governments, the grandparents, etc.

    Thanks

  14. Consider that by requiring a bank to maintain greater capital reserves they have less incentive to loan money, but it does not matter because the money they are not loaning cost them almost nothing since they can borrow from the Fed at almost 0% interest.

    So the Fed says; Maintain 5% capital reserves and oh, here is the interest free money to do it with. What a deal.

  15. What am I missing? At 0% interest, isn't the ratio between borrowing and lending almost infinite? This is a ticket for banks to lend like nuts!

  16. Of course it is the same old fundamentally flawed economic system and come or hell or high water, the people ( the Fed, the banks, economist , politicians, corporation etc who cooked it up , have no intend to make any changes. As long as it works for them and they all live high on the hog, call all the shots, cut deals of the side,why should they change.

  17. The stress tests come across as quite severe and the ability to handle those "events" is encouraging at first glance - but the devil is in the detail.

    The borrowing at close to zero interest rates has almost certainly made a difference. Its not clear though how the banks fare as interest rates rise.

    Hopefully the monitoring on banks and their "stress-worthiness" will be on-going and not just during this "nursing back to health" stage.

  18. If ever this fundamentally flawed economic system is to be fixed to have even 10% chance the Federal Reserve it self need amenability, transparency, publishing the rules and regulation under which it operates and a stress test for its own viability. All these schemes between these too big to fall banks that hold this country hostage and the Federal Reserve needs a watch dog with fangs.

  19. First, let's be clear: these tests are hogwash, conducted only with voluntarily-provided figures for the purpose of fomenting propaganda to justify previous theft and continued Federal Reserve theft. Any "results" released to the public do NOT represent transparency of this process or about bank balance sheets or practices.
    It must be pointed out that the Tier 1 capital increases at the banks came from us! We took their toxic debt and gave them free money at the lending window and through the QE programs. And every day that interest rates are kept at 0% is a gift to still-insolvent investment banks and a slap in the face to retirees.
    One of the digusting aspects to this stress test concept is that it talks of the big banks as if they were patients under our tender care, like a father who had suffered a heart attack or a car accident and our money was like a life-saving blood tranfusion. A more proper image is of the nation as the victim in a hit and run, with these big banks driving the getaway car. Bailing out the big banks has nothing to do with unemployment figures other than causing them to go up by saddling the Fed with trillions in new debt, preventing lawmakers from spending on actual job creation and helping states and municipalities and small business owners crushed by the recession.
    Lastly, a 50% drop in the stock market, 8% drop in GDP and unemployment going to 13%, would be so cataclysmic, the banks would be the least of our worries.

  20. Bailing out the big banks was an inevitable consequence of turning over our nation to them thirty years ago, compounded by the repeal of Glass - Steagall. When they have you in a position of helpless vulnerability and then squeeze, you scream but submit. otherwise they can bring about "a 50% drop in the stock market, 8% drop in GDP and unemployment going to 13%."

    The economy, and particularly international commerce, are served well by big banks. However, if they are not regulated as well as they are in Canada, for example, all this will happen again and again.

  21. Of course another factor are the charges banks have been imposing on their customers. My bank wanted to charge me $50 to transfer my money. This used to be a nominal fee. So I asked for a check instead. However their are other charges that have gone up as well as new charges for things that used to be free. Some banks want you to pay online, but will charge for anything over 5 payments.

  22. We really do need to have an adult public discussion of the theory of fiat currency management, but there is nobody to preside over it.

  23. The industry cannot be on former ground if the same executives are in charge. The balance sheets are firmed up at the expense of lending and credit, but not speculation.

  24. Yeah I sure it will be truthful and dead on oh by the way.... I have a used but weather worn bridge for sale in Brooklyn. Best offer takes it !

  25. Well, the banks may be tested but the middle class is more interested in gasoline prices, food inflation, and the mess we are leaving for our grandchildren because of the federal deficit. How about a stress test for the federal government? These areas may not be deemed reporting-worthy by the NYT, but they sure are affecting the middle class, or I might call it the 49%.

  26. Stress test? Ha!! More like dress tests... "Where would you like the hem?" winks the Fed to the bankster.

  27. Hmmm...Can anyone tell me how, specifically, this is any different than the numerous times we were assured that "everything is fine" by the Republicans & Democrats regarding Fannie, Freddy, Social Security, MediCare, MediCaid, No Child Left Behind, Fast & Furious [for sake of time & comment limit space I won't go back another 100 years of example after example after...]? Can anyone? How about this & before you call me a "conspiracy theorist" or a "Paulbot" or any other juvenile, grade-school level attack when you feel offended & can't retort logically, why don't we just all slow down . . . look at SPECIFICALLY which politicians have been accurate over the past 20 years in their predictions & which politicians SPECIFICALLY have been inaccurate in their predictions over the past 20 years & reach a conclusion based on nothing but fact-based history? We do this when hire new employees, take a new job, send our children to school, research where to send our parent's & other family members to the best health & medical doctors available, when we buy a new house in a new neighborhood, when we buy a care, insurance, IRAs, make new friends, etc, etc, etc. I'm just at a complete & total loss as to how, as a majority, the American public, which is still a fairly well-educated public, could do all these things in a logical process but fail to do so with politician options which is the highest office in the land. Instead, you let the MSM tell you what will happen. I'll never understand.

  28. It is scary to know that Bank of America and Citigroup had to sell billions of dollars’ worth of new stock to raise capital, lowering the value of the stock held by shareholders. My 401(k) Mutual Funds probably bought some of their stock and I am too stupid to figure it out. Although, with all of the taxpayer money that is pouring into these companies, maybe it will be a good investment.

  29. Yes, investors in banks stocks are the folks who wind up most clobbered by the Federal Reserve Bank's clueless monetary policy.

  30. Do we know if these "holes" in the balance sheets were filled with taxpayer money and yet are to be repaid?

  31. Would any of you suckers care to invest in a bank stock? Then I have a bridge for you!

  32. The ostensibly inadvertent creation of interest rate risk by central banks originally chartered to to reduce interest rate risk has destroyed the whole classical business model of banking.

    Monetary policy cannot regulate money velocity as needed to regulate the business cycle. Only fiscal policy works.

  33. The banks were made solvent with near 0% rates given to depositors and borrowing from the Fed. Before they stay paying stockholders, they should start paying their customers better by raising saving rates. And the Fed should raise the discount rate and make it clear they are doing so not to raise rates for the economy but because the free ride for banks has now ended since they now have adequate capital.

    Those fat cat bankers are terribly over paid in an unworkable business model. Time to revert back to the days of 5 1/4% day to day savings rates. Somehow those fat cats still made money and their 3 PM tee times.

  34. @Carolyn @Russel you can check all of the financial ratios for your banks on our site, http://www.knowyourbank.com. Like the article mentions, Tier 1 capital ratio is a great indication of a bank's liquidity (we use Tier one Risk based capital ratio). Another key metric to look for is the Texas ratio, which measures a bank's credit trouble. The higher the Texas ratio, the more severe the credit trouble is.

    For example, New City Bank, which was just shut down by the FDIC had -3.5% Tier one risk based capital and a 390% Texas ratio as opposed to Bank of America which has 11.7% and 25.1% and First Republic, which has 13.3% and 1.3%, respectively.

    If you're new to liquidity ratios you should know that a 5% Tier 1 capital ratio is nothing to go bragging about. Many U.S. credit unions boast capitalization ratios in excess of 20% and other countries, for example Canada, have a minimum capitalization requirement of 20%!

    The public should be more aware of these figures and what it means to their bank's financial wherewithal. If you have any questions about your bank specifically, tweet us (@knowyourbank) and we'll answer them.