Leading U.S. banks to undergo Fed stress tests
A man walks his dog in front of a Chase bank office on October 13, 2011 in Oakland, Calif.
Steve Chiotakis: Big U.S. banks again will go on the treadmill for a series of stress tests. The Federal Reserve says this time it's to see whether any of them are susceptible to European debt. Or would be able to weather a disastrous economic storm.
Marketplace's John Dimsdale is with us live from our Washington Bureau with the latest. Good morning John.
John Dimsdale:Hey Steve.
Chiotakis: Didn't we already go through stress tests for American banks?
Dimsdale: You're right, but regulators worry that Europe's in for a bumpy ride that could cause another credit freeze -- not unlike the one banks went through three or four years ago. So the Fed's requiring banks to test several scenarios to see how a severe economic downturn -- even a recession, where unemployment hits 13 percent -- would affect the banks' reserves. And as you say, they went through these tests a couple years ago, and regulators said then that they'd probably be a one time deal.
But Guy Lebas at Janney Montgomery Scott says these tests need to be run over and over again.
Guy Lebas: Whether or not the Fed publishes the results of the stress test, as a good regulator they should be doing them for a good long time. It's a good policy to make sure there are no unexpected risks that could threaten the solvency of individual banks or the financial system as a whole.
Chiotakis: So John, will the tests give investors more trust in our banks and their strength, despite Europe's weakness?
Dimsdale: They are designed to do just that -- to show that banks are resilient. But LeBas points out that they need to be updated from time to time because the threats to banks are changing.
Chiotakis: Marketplace's John Dimsdale, reporting from Washington. John, thanks.