U.S. promises stress test results 2 years from today, for regulatory forbearance today - for the top 100 banks.
What follows is a list of most, but not all, of the many zingers in this story. My comments are the lines not in italics.
Bank regulators on Tuesday approved regulations requiring more than 100 large financial institutions with more than $10 billion in assets to conduct annual stress tests to ensure they have enough capital in the event of a deep recession.
That's the supposedly good part. Next, the bad part, bank stress BS.
The rule, which regulators proposed in January, gives a break to mid-sized banks who will have two additional years before any test results are made public.
The new rules were approved by the board of Federal Deposit Insurance Corp., the Comptroller of the Currency and the Federal Reserve as part of a three-agency joint rule effort.
A Coalition of the Proven Willing [to not regulate]! After Desert Storm, we've moved on to Operation Wall St. BS!
The regulation requires stress tests based on three [fantasies], a baseline [fantasy], an adverse [fantasy] and a severely [obtuse fantasy] that will be provided to banks and the public by November 15 at the latest each year.
At last. We can all rest easy, retire to a life of leisure and order suits from Madoff's cousin Larry.
Regulators originally proposed to have each institution publicly release the results of each of the three scenarios. However, banks complained that the results of the baseline and adverse scenario could be construed as a traditional earnings forecast and as a result regulators agreed that only the results of the severely adverse scenario -- one forecasting a deep recession -- would be made public.
So all they have to tell us is their imagined response to an imagined armageddon!. Sounds useful. Move along. Nothing to look at here until the next supernova.
The scenarios, which will be disclosed in November, are expected to change from year to year and they may vary depending on which regulator is each institution’s primary overseer.
Nothing to worry about there! Do you suppose they've hired Leno's writers?
Sheila Bair, the chairman of the FDIC between 2006 and 2011, told MarketWatch, that the stress tests conducted on a broader group of institutions are a net positive because it has examiners take a more forward looking view on what’s on a bank’s balance sheet and pressing the bank’s management to do the same.
Can someone translate that gobbledygook? Does it have any specific legal meaning, or any & all of 'em at once? The Blair Bait & Switch? It all depends on deploying enough examiners who can and will do their jobs.
However, she added that the stress tests can be improved, noting that in the past the Fed has looked at a bank’s risk-based capital levels and that wasn’t good enough. Bair said the market has more confidence in a leverage ratio that focuses more on a bank’s common equitylist.
That's the supposedly good part. Next, the bad part, bank stress BS.
The rule, which regulators proposed in January, gives a break to mid-sized banks who will have two additional years before any test results are made public.
The new rules were approved by the board of Federal Deposit Insurance Corp., the Comptroller of the Currency and the Federal Reserve as part of a three-agency joint rule effort.
A Coalition of the Proven Willing [to not regulate]! After Desert Storm, we've moved on to Operation Wall St. BS!
The regulation requires stress tests based on three [fantasies], a baseline [fantasy], an adverse [fantasy] and a severely [obtuse fantasy] that will be provided to banks and the public by November 15 at the latest each year.
At last. We can all rest easy, retire to a life of leisure and order suits from Madoff's cousin Larry.
Regulators originally proposed to have each institution publicly release the results of each of the three scenarios. However, banks complained that the results of the baseline and adverse scenario could be construed as a traditional earnings forecast and as a result regulators agreed that only the results of the severely adverse scenario -- one forecasting a deep recession -- would be made public.
So all they have to tell us is their imagined response to an imagined armageddon!. Sounds useful. Move along. Nothing to look at here until the next supernova.
The scenarios, which will be disclosed in November, are expected to change from year to year and they may vary depending on which regulator is each institution’s primary overseer.
Nothing to worry about there! Do you suppose they've hired Leno's writers?
Sheila Bair, the chairman of the FDIC between 2006 and 2011, told MarketWatch, that the stress tests conducted on a broader group of institutions are a net positive because it has examiners take a more forward looking view on what’s on a bank’s balance sheet and pressing the bank’s management to do the same.
Can someone translate that gobbledygook? Does it have any specific legal meaning, or any & all of 'em at once? The Blair Bait & Switch? It all depends on deploying enough examiners who can and will do their jobs.
However, she added that the stress tests can be improved, noting that in the past the Fed has looked at a bank’s risk-based capital levels and that wasn’t good enough. Bair said the market has more confidence in a leverage ratio that focuses more on a bank’s common equitylist.
“We found during the crisis that the market doesn’t believe a risk-based capital level which can be heavily influenced by banks about how risky they think their assets are,” she said.
Come again? I defy anyone to diagram that sentence. Did she mean to say that "the market doesn’t believe [in] a risk-based capital level [because bank executives can lie like hell, or delude even their own mirrors]?" Why not just hire enough regulators that want to, and know how to, do their jobs?
With the new rules, banks with between $10 billion and $50 billion in assets were given more time to prepare for their stress tests than the largest banks, many of which have experience with the approach.
Experience? What approach is she talking about? Fraud? Deception? Dissembling?
Smaller banks won’t be required to have stress tests conducted until Fall, 2013, based on Sept. 30 data of that year. These banks also won’t have to publicly release the results of their tests in the first year. Their first public disclosure will be made in 2015 describing their 2014 tests. Also, these mid-sized banks won’t have to release the results of their tests until March 31 annually.
Roughly 25 institutions will have stress tests conducted by the FDIC. About 78 bank holding companies, including 34 with assets of more than $50 billion, will have stress tests conducted under the oversight of the Fed.
In addition, some large companies with financial units are expected to be designated systemically risky sometime later this year and those too will be required to conduct stress tests, a Federal Reserve official said.
Why not just cut through all the Gordian knotheds, and break up the systemically risky institutions?
The 19 largest banks with $50 billion or more must conduct stress testing this year with results set to be submitted to the Fed’s board by Jan. 5, 2013, with results released publicly by March.
This time, the biggest banks will this time be conducting tests for three scenarios, rather than the two -- baseline and severely adverse -- scenarios they conducted in the most recent tests released in March.
Ooh! Three fantasies rather than just two! That's progress, at least at Happy Hour.
OCC Chief Thomas Curry said he approved a similar rule for national banks and thrifts, adding that the delay for mid-sized institutions would make the results more reliable “by giving them the time to do it right.”
How much time do SRIs need to do fantasy right?
However, FDIC member Jeremiah Norton said he supports the tests but wanted to emphasize that it is only one element of supervision, adding that he didn’t want investors or creditors to be over-reliant on the results.
“I hope we don’t send the signal that because a firm passes a stress test that investors and creditors don’t need to worry,” Norton said.
Now who would have thought that? :(
The expansion of the stress testing is required by the Dodd-Frank Act, written in the wake of the financial crisis of 2008. The first set of stress tests were released for the largest institutions in 2009.
Glass-Steagall, in their comparatively infinite wisdom, did not substitute fantasy requirements for simple common sense.
Are we still doomed?
2 comments:
Bit like the Spanish bank "Bankia" which passed the Euro stress test in 2011, then decided a few months later it was short of 20 billion Euros.
90% of politics is a continuing "stress test" for every foolish population being separated from it's assets?
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