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Stress Tests - getting testy and stressed

This morning we were told that the results of the stress tests were not yet known.  We were told that most banks were well capitalized.  We were also told that the "leak" of the stress tests yesterday was false.  True?? 


WASHINGTON (NYSE:AP) – The government is giving Wall Street banks a helping hand. But this time it's not a handout. The federal bank "stress tests" rate the individual loans held by big regional banks as riskier than the complex troubled assets held by the industry titans, according to a Federal Reserve document obtained by The Associated Press. That approach could threaten some major regional banks while making the national banks appear in better shape when the government releases the results of the tests next month.

Analysts say regulators are probably favoring the largest banks because if even one failed, it would pose a grave financial risk. Banks that deal in securities are more connected to other corners of the global financial system.  Regulators also face pressure to highlight the weaknesses of some banks. Otherwise, critics will dismiss the tests as a whitewash. That could undermine one aim of the tests — restoring confidence in the banking system.  The approach spelled out in the Fed document "certainly penalizes those banks that are more involved in traditional banking, which frankly have been performing better in recent months," said Wayne Abernathy, a former Treasury Department official now with the American Bankers Association.

He said banks' loan portfolios have lost only about 5 percent of their value so far, while the values of complex securities are down 30 to 40 percent. The securities are held mostly by banking titans like Citigroup, JP Morgan Chase, Bank of America and Goldman Sachs. Their value is based on the performance of vast pools of underlying loans.

A Treasury Department spokesman referred questions to the Fed. A spokesman for the Federal Reserve declined comment.

This is the transparency we were promised.  Is the resultant volatility better for the market?  I realize that the results being held off will allow the banks to get through earnings season (which is already mixed and of questionable quality), but is it worth it.   Is this what lead to Zions rating getting decimated?

disclosure: long Zions preferred