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