Banks conduct their own stress tests, but apparently they’re not as stringent as the ones currently being performed by the Treasury.
Reuters reports that there’s significant tension between banks and regulators ahead of the results.
In the meantime, bank examiners are struggling in the stress tests to get banks to accept that they are valuing assets on their books too highly, according to bank industry sources. Many of the banks have completed their own stress tests, and regulators will soon sit down with the banks’ management to reconcile the differing results, these sources said.
At issue, not surprisingly, is what tests should be used. Along the lines of their opposition to mark-to-market, the banks would like to see a stress test that assumes the crisis will abate and that we’ll return to some semblance of normalcy before too long.
“Strictly speaking, many banks are insolvent now. In the long run, though, we can pass any test, so how much time do we have?” a banking source familiar with his firm’s stress test work said.