When all you read is gloom, turn here for a much different perspective.

Monday, April 27, 2009

Stress Tests: Most of the 19 Banks Passed

On Monday, there were several excellent articles written on the likely results of the federal stress tests on the top 19 banks.

1. The results are being closely guarded.
2. The banks are to keep quiet.
3. Even with guards and strict orders, the results are widely known already.

Federal officials shared the preliminary results of the stress tests with representatives of the 19 largest banks on Friday.

The thought then was that the general public would not see the results of the stress tests until May 4. But even though these financial institutions have reportedly been issued a "harsh gag order", it is quite likely that the information has already leaked.

As writer Donald Johnson wrote yesterday, "there are no secrets on Wall Street." If one assumes that the data on these tests has already leaked out over the weekend an analysis of the top 18 banks' stock performance Monday will clearly tell the story. (The 19th bank GMAC LLC is privately held)

A speculative look at this table likely reveals the three banks that failed the tests.

The good news? The other 15 or 16 passed the regulator's stress exam.

When the results are finally official we'll have one more indication that the majority of large and small banks are no longer in crisis mode.


  1. The bank stress tests are based on such blatantly mild premises, the word “stress” itself is a misnomer.


  2. Anonymous, (likely Martin D. Weiss, Ph.D.)

    Thanks for reading. I would argue that several of the "lies" that you post on your website are have extremely light basis and supporting data. It is one thing to make your claims. It is quite another to back it up. The supporting data for your "lie #5" is quite weak. In the short term, good luck with your book. I predict you have about 3 more months to make sales. Q1 GDP will be released this week. The better than expected results will nullify half of your claims. Three months from now when Q2 results are in, you will need to put your book on mothballs until the next bear cycle.

    Thanks for reading,

  3. What happens to the bank if it fails the stress test?

  4. Anonymous2,

    For those banks that fail, they regulators will require that they raise additional capital quickly in order to maintain an appropriate level of capital. It is likely that they will be required to take on additional government TARP funds in order to maintain regulatory compliance with the test.


  5. The B of A now needs something like $70 billion to stay afloat or some crazy number like that, as reported in the W.S.J.

  6. Wow, a website that accentuates the positive. You don't see that every day.

  7. GNE,

    How do you square the report regarding B of A with the news about the stress tests and good bank earnings? It just doesn't make sense to the lay person.

  8. Anonymous3,
    I'll try to put it into lay terms. Let's use your own personal finances. You have income, expenses, and investments/savings.
    The test is to determine if you can cover your expenses for the next year regardless of the country's economic conditions. There are many things at play here beyond just your income, that will tell us whether or not you can make it. How much are your monthly expenses? Might they increase or decrease next year? How are your investments doing? Did you have a significant life event that made you spend most of your savings last year? Perhaps you lost your job and had to use all your savings to cover your expenses... You may have just gotten a new job with good earnings, but does it cover your life expenses for the next year? I might determine as your parent that to make sure you that you are "fine" over the next several years, that I "loan" you some money to put in your savings account just in case... Make sense?

  9. I thought the stress tests were for fact finding and not 'pass-fail' tests. This article is total speculation based on Donald Johnson's article - which in turn speculates about the banks' stress test results by looking at their price charts. Does double speculation lead to correct decisions?


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