Wednesday, April 22, 2009

The bank stress test

According to the WSJ, regulators are going to give the banks the results of the stress test a week early, to give them time to "debate" (massage) the numbers and the results before they are revealed (and not this time through the radio version of The Turner Diaries).

Some of their assumptions used in the stress test:

Under a more adverse scenario, which assumes a 10.3% unemployment rate at the end of 2010, banks would have to calculate two-year losses of up to 8.5% on their first-lien mortgage portfolios, 11% on home-equity lines of credit, 8% on commercial and industrial loans, 12% on commercial real-estate loans and 20% on credit-card portfolios, according to a confidential document the Federal Reserve gave banks in February that was viewed by The Wall Street Journal. Regulators are expected to have used other assumptions as well when measuring a bank's strength.

KC President Thomas Hoenig has a new proposal-Let firms fail. Does anybody believe that?

Insolvent financial firms must be allowed to fail regardless of their size, and sheltering such "too big to fail" institutions risks making the financial crisis worse, a top Federal Reserve official said Tuesday.

(ZH has Ben Dover as the hat tip on the Hoenig article!)

The day our Government decides to claw back an AIG bonus, is the day the aforementioned is a possibility.

Until them, it is just like their dealings with AIG--just smoke and mirrors.

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