The stress test is again a charade and a PR event which will fire back

Most Banks Have Enough Capital After Stress Tests? Who are they trying to fool? US banks do their own projections is bluntly irresponsible. They had their pathetic risk models which never worked and they do not have intentions to speak the truth. If AIG
would not have been used to bail out the various banks even Goldman
would be broke in what kind scenario that might have showed up I do
wonder.


Thats the most pathetic criteria for a stress test I could imagine and as Ms Whitney said absolutely correctly
letting the banks give projections on insane positive worst case
scenario’s is completely outrageous ( she said it more diplomatic
though). Now we ask the same guys who said 1 and 2 years ago everything
was fine to repeat the same lies. Jobless figures of 10 % and only a
growth of 0.5% even contradicts the IMF projections what will be ( not that they were specifically
good as they do revise them on a monthly basis) but that is even not
worst case scenario. A prudent stress test would try to see how a
depression scenario plays out or a continued contraction til 2012 and
the assessment
of the balance sheets had to be done by outsiders its not that
complicated bank analysts do that all the time and Ms Whitney was quite
right with her projections ( except onetime on Lehman).

The
100 days for Obama to prove himself are over and reality bits – I do
not see any change just some opportunistic stuff like closing
Guantanamo which has been replaced by other facilities. He apparently
approved of almost anything what Bush did the only difference is his
attempt in foreign policy as he meets CUBA,Venezuela
and Iran half way but that are random events as at some point soon we
will have him challenged by reality. When it comes to the way he deals
within the crisis and especially the ones who caused it directly the financial institutions. He gets a ‘D’ by me as he cannot be very serious about it with the advisors he appointed is very obvious. The latest move to let Emmanuel say that he stands 100% behind Bernanke disqualifies all his speeches of ‘change’ – how could he as one of his biggest sponsor‘s were Goldman and friends.


Excerpt

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The
US government, releasing details of how it conducted “stress tests” on
the nation’s 19 largest financial institutions, said “most banks
currently have capital levels well in excess of the amounts needed to
be well capitalized.”

The
report said the tests are a “forward-looking exercise designed to
estimate losses, revenues and reserve needs” under two different
macroeconomic scenarios, including an adverse one.

According to the report, the “banks were asked to project their credit losses and revenues for two years.”

The process “involves the projection of losses on loans, assets held in investment potfolios and trading-related exposures, as well as the firm’s capacity to absorb losses in order to determine a sufficient capital level to support lending.”

The
stress tests included two economic scenarios. In terms of the
unemployment rate, the worse case was assumed to be 10 percent, housing
prices are assumed to be 10 percent lower at the end of 2010 than the
more likely baseline scenario. The baseline jobless rate averages 9.8
percent.

In terms of GDP scenarios, the stress tests assume baseline levels of minus 2 percent in 2009 and plus 2.1 percent in 2010.

The
adverse scenario levels are negative 3.3 percent this year and growth
of just 0.5 percent next year The tests also ask banks to provide
projections of “resources available to absorb losses under two
scenarios” over a two-year period.

The
tests also ask banks to provide projections of “resources available to
absorb losses under two scenarios” over a two-year period.

Reaction to the criteria and methodology of the tests was muted.

The
government last week announced a two-stage disclosure process, wherein
the test criteria would be outlined today and the actual test results
on May 4.

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~ by behindthematrix on April 25, 2009.

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