Is there any good reason to follow through with the stress tests and actually release the results?
Word is, the White House plans to announce its finidings on May 4. But, but… first regulators are going to publish a paper explaining the stress tests on April 24. It’s the latest evidence that the whole concept is becoming something of a fiasco for the administration, which is now going to great pains to maintain its credibiliy as a serious test for banks, while not spooking investors.
Of course, we’ve also been told that all 19 banks have passed. But also that some banks would need more shareholder-diluting capital once the results are released.
It doesn’t help that all the banks apparently had blowout quarters, which if they’re being totally honest should make you wonder why they need any extra capital at all.
At this point, we don’t think anyone would begrudge the administration for doing an about face and admitting that they won’t do much good. It’s ok. People make mistakes.
Besides, the market can do a fine job distinguishing winners and losers on its own. As an alternative, just make all the banks raise, say, 5% of their market cap in the private sector. The ones that can do it are healthy. The ones that can’t will get some extra help from TARP and voila. It’d be a lot more honest, and less political.