Yesterday, the U.S. treasury secretary announced that the gov't has performed stress tests on U.S. banks to see if any are in danger of failing if the recession gets worse. Results are not being made public until May out of fear that the results will spook the markets. He said that banks in danger of failing would get bailout funds and would not be allowed to fail. This makes me a bit nervous about the markets. Any thoughts on what the results will be and the consequences for the markets?

I think the gvt will trade bailout for equity shares in their rush to nationalize every industry they can get their meat hooks into. Then most likely they will allow the banks to do what they should be doing now... sink... restructure... and come back as smaller entitites. The govt. will give them cover so they can claim that technically they are not going through a bankruptsy process. The gvt. Will take ownership of so called toxic assets ;and like the RTC model ,will resell the assets on the open market for whatever they can get for them.

Yesterday, the U.S. treasury secretary announced that the gov't has performed stress tests on U.S. banks to see if any are in danger of failing if the recession gets worse. Hello earl:

I don't know. Seems to me the best stress test to find out if a bank is going to fail, is to see if it fails. If they find out it's going to fail, does that mean they put more taxpayer money into a failing bank?

excon

Earl,

Every bank goes through a "stress test" every quarter. The definition of "stress test" in the case of the banks that received TARP money is a review of liquidity and capitalization levels. This is reported to the FDIC by every bank in the USA (or at least every one that it FDIC insured) and is available to the public via the FDIC website in the bank's Call Reports or Thrift Reports (depending on the type of bank). There are capitalization ratios and liquidity ratios (raw and adjusted) within the call reports.

These stress tests aren't going to tell us anything we don't already know. They are, by and large, a fruitless exercize that isn't going to reveal anything about the ability of the banks to remain in business.

The stress tests are a waste of time. Especially since the assets that define capitalization can't be valued. An excersize in futility.

For once I agree with Excon. The only way to know which banks will fail is to let them fail. The ones that survive will be stronger, leaner and better able to do business. The ones that fail SHOULD fail.

Elliot