mathgeek

How Are Those Banks Doing? Depends Who You Ask

Excellent article.

While it has become everyone's favorite sport to blame the bankers for everything bad in the world, I think this shows the dilemma they face.

Do you lend more? This reduces the capital cushion and makes it more likely you will fail the stress test. Banks have long been caught between conflicting pressures from Washington. (Lend more! Lend more cautiously! Lend more to lower income people! Keep your rates down! Keep more capital on hand! etc. etc.) TARP combined with the stress tests are merely a bit more blatently schizophrenic than usual.

I think that the insight that the stress test may be used to force banks to hold on to TARP funds longer is an excellent one... the question then becomes what is the government willing to do to try to force more of those funds to be lent? The real answer to that question may very well be nothing.... at least nothing beyond giving the media a few juicy soudbites about greedy bankers.