New Banking Stress Test: A Total Joke?


The NYT reports that 100 banking regulators have already gone into Citi (C) to perform a “stress test”, as part of Geithner’s new plan to figure out who is healthy, who needs help, and who needs to die.

Yves Smith thinks it’s a total joke and that 100 regulators can’t possibly get a good grasp on a bank of that size.

In the early 1990s, when Citi almost went under, it had 160 bank examiners working SOLELY on its commercial real estate portfolio (Citi has a lot of junior debt against buildings that turned out to be see-throughs).

I would welcome reader input (especially from bank examiners and accountants), but it is pretty clear 100 people and a few weeks (or even a few months) is grossly inadequate for a bank the size and complexity of a Citigroup. Citi has operations in over 100 countries. All 100 examiners can do is make queries along narrow lines, and work with the data presented. This scale of operation won’t allow for any verification or recasting of data. There isn’t remotely enough manpower.

And do you think these examiners are in any position to assess the risks of CDS, CDOs, swaps, foreign exchange exposures, Treasury operations, prime brokerage, to name just a few? I cant imagine US bank examiners have much competence in FX risk (Citi trades in a lot of exotic currencies, too), and that’s one of the easier to assess on the list above.