Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW

New round of stress tests planned for biggest U.S. banks

Jeremy Hobson Nov 23, 2011

JEREMY HOBSON: The Federal Reserve says it will launch a new round of stress tests on the biggest U.S. banks — the ones that remain too big to fail. This time, the stress tests will focus on how the banks would fare if there’s a global market shock. Like, maybe from, say, Europe.

CORNELIUS HURELY: For more, we turn to Cornelius Hurley. He’s director of the Center on Finance, Law and Policy at Boston University, and he joins us now. Good morning.

HURELY: Good morning, Jeremy.

HOBSON: What does it say to you that the Fed is saying we need to go in and have new stress tests here, even though most people have been saying for a whole that the U.S. banks would be able to withstand a financial crisis in Europe?

HURELY: Stress testing is something the regulators should be doing on an on-going basis anyway. One would hope that the Fed, in combination with other primary regulators, has a daily read on the pulse of the financial services industry and I would suspect that the Fed is highly confident that the results of these stress tests will be positive.

HOBSON: Do you think think things are getting better or worse in the banking system in this country right now?

HURELY: That’s an excellent question. If you look at the FDIC’s statistics from yesterday, bank profits for the last quarter at $35 billion have returned to pre-crisis levels. However, most of that comes from banks no longer squirreling away money for a reserve.

The problem is, banks are just not lending at the volume they should be lending to promote a recovery. So from an earnings and capitals standpoint, the banking system seems to be improving, but from a role in the economy and the proper functioning of banks in our economy, I cannot have the same optimistic analysis.

HOBSON: Cornelius Hurley is the director for Center on Finance, Law and Policy at Boston University, thanks so much.

HURELY: Thank you, Jeremy.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.