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What to Watch: Major Banks Get Stress Tests Today

Anthony Randazzo
May 5, 2009, 8:48am

From this morning's Washington Post:

"Regulators plan to brief the nation's largest banks today on the final results of federal tests to determine whether the companies have sufficient reserves to weather the recession, with a public announcement scheduled for Thursday afternoon.
Preliminary results showed that firms including Bank of America, Citigroup and Regions Financial of Alabama needed to strengthen their capital reserves, according to sources familiar with the matter. Financial analysts believe that several other banks, including Wells Fargo, also may be required to take remedial action.
Bank executives continued to meet with regulators yesterday to push for adjustments in the findings, for example arguing that profits will exceed government expectations."

As I mentioned yesterday, a problem I see with the stress test results is government over burdening banks, forcing them to raise more capital then they need and subsequently creating a scenario where Washington feels it has no choice but to nationalize take them into receivership. 

Also, this morning, Dr. Doom Roubini has a column in the Wall Street Journal claiming the stress test results aren't dire enough. He thinks we are in worse shape then they'll predict and wants congress to fast track a law that would allow the government to quickly be in a position to take complex financial institutions into receivership. He also calls for more restrictions on banks that get TARP money--though to be fair he is chiefly concerned about banks using taxpayer money to invest in more subprime mortgages. 


Anthony Randazzo is Director of Economic Research


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