The U.S. government has finally been forced to do the right thing, which is share some of the results of the bank “stress tests” after they are completed.
As we’ve complained, the “stress tests” aren’t stressful enough, and are therefore basically propaganda designed to create the appearance of a healthy banking system, but more information is better than less.
There is some concern that releasing the stress test results will immediately trigger a run on the lousy banks. If the results seemed lousy enough to cause a run, we doubt the government would release the information (remember–the government thinks we can’t handle the truth.) But if there’s a run on a couple of big banks, then so be it. Better to deal with the problem sooner rather than later.
WSJ: The Obama administration is considering making public some results of the stress tests being conducted on the country’s 19 largest banks, said people familiar with the matter, a move that could help more clearly separate healthy banks from the weaklings.
Until now, the government has tried to treat all banks equally, pouring cash into both strong and struggling institutions to prop up the financial sector. The strategy has provided cover for beleaguered banks, which received funds along with their stronger brethren.
This possible move, combined with first-quarter bank earnings and the push by some financial institutions to raise new capital and repay their bailout funds, could lay the groundwork for a new phase in the financial crisis. Within weeks, the stronger banks could emerge free of government shackles and flush with new funds, with weaker ones still reliant on federal largesse. That would transform how investors and the government view the financial sector.
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