🚗 🚙 Turn your trusty old car into trustworthy journalism Learn more
Marketplace Scratch Pad

I wouldn’t pass the stress test

Scott Jagow Apr 10, 2009

The banks are stressing me out. I can’t stand all the secrecy and the magic accounting tricks and the government’s indecipherable measurement tools. Was Wells Fargo’s CEO right when he called the bank stress tests “asinine?”

Here’s what Richard Kovacevich said a few weeks ago:

“We do stress tests all the time on all of our portfolios,” Kovacevich said. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.”

The tests are supposed to determine which of the 19 largest banks need to raise more money from private investors. But former government regulator Barbara Matthews pointed out on Marketplace this week the design flaw here:

It becomes very tricky, though, doesn’t it? Say you’re a bank. “Hi, my stress test came out really badly. Please could you give me money?” That’s a very difficult sell to a private capital market.

Bloomberg says the Federal Reserve has told banks to keep quiet about the stress test results until late April, after 1st quarter bank earnings are out:

“If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

And then the short sellers will swoop in and feast on the carcasses of the most rotten-looking banks, driving their shares to nothing. But I imagine that’s going to happen no matter when the results are released.

It just shows you that the government can talk about transparency, but when it comes down to it, the taxpayers are left to trust what the Fed is doing. Just like last fall, when Bernanke and Paulson said, trust us, the economy is in imminent danger if we don’t pour hundreds of billions of dollars into these banks.

Maybe they were right, but it’s the not knowing that’s so stressful.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.