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04/24/2009

Stressful Enough

The outline (PDF) of the methodology used to stress test the banks is out, and I already see some people arguing that it's not nearly stressful enough. And they have a point; the adverse scenario only has unemployment heading a little north of 10%. Is that a problem? I don't actually think so. For one thing, it's likely to be damning enough as it is. It has to be, or markets will roll their eyes and move on. Tim Geithner can't help but give us all some useful information at this point, which is the point, after all.

And secondly, I actually don't know that there's much point in pushing for a more adverse adverse scenario. Things don't have to get much worse than the one they chose before every bank is once again in serious trouble, and before things get unpredictable in any case. What would the banking system look like if the United States hits 13% unemployment? Maybe there are models to figure this out, but I suspect no one can say much more than "awful, and with a lot more government intervention, of immediate necessity."

I'll feel silly for having written this if everyone walks out of the Treasury building with gold stars on their test papers, but I really don't think this is indicative of the administration trying to give banks a free pass.

Related Links
Geithner's Plan to Revamp Global Financial Regulation
Tim Geithner on the Financial Crisis: A Mock Interview
How Do You Recapitalize $1.8 Trillion in Bank Loan Losses?



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