Stress test for banks question
05-01-2009, 05:53 PM
#1
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Stress test for banks question
Been hearing a lot about stress test's for banks and very little info on how the stress test work's,maybe I missed something along the way.
Any one know how this is supposed to work?
Ally
Any one know how this is supposed to work?
Ally
05-01-2009, 06:13 PM
#2
With The Resistance
Joined APC: Jan 2006
Position: Burning the Agitprop of the Apparat
Posts: 6,191
It is hard to find information on the exact nature of the tests or the results.
The motives remain somewhat obscure, some are published and some are not.
Anyway here is a little non-official explanation from someone not in an official position:
The Federal Reserve Board of Governors, as promised, has released a white paper enlightening the common peasants to the Fed methodology of stress tests - thank goodness because otherwise the idiots down here at Ground Zero might have no idea what the hell is going on and God forbid the Fed allow that to happen!
Skeeze on over to the Board's website and take a look for yourself if you have no life, actually believe what these (we'll use the word people here) have to say, or find yourself laid off with too much time on your hands and want a good laugh.
Let's analyze this announcement for a moment, shall we? You're here for a reason - you don't want to analyze this on your own, do you? - so let me pull out my central banker decoder ring and make some sense of this farce.
Firstly, I point out that even if the "tests" were constructed using sane accounting rules (as opposed to the Fed's "(we'll use the word special here) method of accounting" which we shall address shortly), the scenarios are all wrong. The Fed, Treasury, FDIC, and OCC are all terribly misinformed or deliberately testing unlikely scenarios in order to make the results better than they should be. Unemployment is raging harder than any of these agencies want to admit (or want you to know, as if you wouldn't notice) so testing rosy little prospects doesn't show anything worth value.
That being said, the tests themselves are, as I said, performed using some mutated hybrid of sound accounting rules. It is not governmental accounting (and why would it be for our friends at the quasi-private Fed?), nor is it GAAP, nor is it IFRS, nor is it anything but a convenient amalgam of accounting. A little bit of accural here, some capital losses here and viola! What do you get? A report that says the top 19 banks are totally well-capitalized. Crisis over. You can go back to watching American Idol now.
Not.
Who had the Treasury crawling all over their books? Citigroup Inc (C), JPMorgan Chase & Co (JPM), Wells Fargo & Co (WFC), Bank of America Corp (BAC), Goldman Sachs Group (GS), Morgan Stanley (MS), MetLife (MET), PNC Financial Services Group (PNC), US Bancorp (USB), Bank of NY Mellon Corp (BK), SunTrust Banks Inc (STI), State Street Corp (STT), Capital One Financial Corp (COF), BB&T Corp (BBT), Regions Financial Corp (RF), American Express Co (AXP), Fifth Third Bancorp (FITB), Keycorp (KEY) and GMAC LLC (GKM) - of the 19 banks poked at by these clowns, all are expected to come out clean except for Regions. Sure.
"These 19 firms collectively hold two‐thirds of the assets and more than one‐half of the loans in the U.S. banking system, and support a very significant portion of the credit intermediation done by the banking sector," says the report. The report does not mention the $200 trillion in derivatives exposure attributed to $WFC, $BAC, $JPM, $GS, and $C. Of course not.
Key points of the (special) accounting method (maybe the AICPA Board of Examiners should add a 5th category to the CPA exam? FAR, AUD, BEC, REG, and (special)?):
- For securities held in the available‐for‐sale and held‐to‐maturity portfolios, institutions were instructed to estimate possible impairment relative to net unrealized losses at year‐end 2008
- Firms were allowed to diverge from the indicative loss rates where they could provide evidence that their estimated loss rates were appropriate
- Although the likelihood that unemployment could average 10.3 percent in 2010 is now higher than had been anticipated when the scenarios were specified, that outcome still exceeds a more recent consensus projection by professional forecasters for an average unemployment rate of 9.3 percent in 2010.
The motives remain somewhat obscure, some are published and some are not.
Anyway here is a little non-official explanation from someone not in an official position:
The Federal Reserve Board of Governors, as promised, has released a white paper enlightening the common peasants to the Fed methodology of stress tests - thank goodness because otherwise the idiots down here at Ground Zero might have no idea what the hell is going on and God forbid the Fed allow that to happen!
Skeeze on over to the Board's website and take a look for yourself if you have no life, actually believe what these (we'll use the word people here) have to say, or find yourself laid off with too much time on your hands and want a good laugh.
Let's analyze this announcement for a moment, shall we? You're here for a reason - you don't want to analyze this on your own, do you? - so let me pull out my central banker decoder ring and make some sense of this farce.
Firstly, I point out that even if the "tests" were constructed using sane accounting rules (as opposed to the Fed's "(we'll use the word special here) method of accounting" which we shall address shortly), the scenarios are all wrong. The Fed, Treasury, FDIC, and OCC are all terribly misinformed or deliberately testing unlikely scenarios in order to make the results better than they should be. Unemployment is raging harder than any of these agencies want to admit (or want you to know, as if you wouldn't notice) so testing rosy little prospects doesn't show anything worth value.
That being said, the tests themselves are, as I said, performed using some mutated hybrid of sound accounting rules. It is not governmental accounting (and why would it be for our friends at the quasi-private Fed?), nor is it GAAP, nor is it IFRS, nor is it anything but a convenient amalgam of accounting. A little bit of accural here, some capital losses here and viola! What do you get? A report that says the top 19 banks are totally well-capitalized. Crisis over. You can go back to watching American Idol now.
Not.
Who had the Treasury crawling all over their books? Citigroup Inc (C), JPMorgan Chase & Co (JPM), Wells Fargo & Co (WFC), Bank of America Corp (BAC), Goldman Sachs Group (GS), Morgan Stanley (MS), MetLife (MET), PNC Financial Services Group (PNC), US Bancorp (USB), Bank of NY Mellon Corp (BK), SunTrust Banks Inc (STI), State Street Corp (STT), Capital One Financial Corp (COF), BB&T Corp (BBT), Regions Financial Corp (RF), American Express Co (AXP), Fifth Third Bancorp (FITB), Keycorp (KEY) and GMAC LLC (GKM) - of the 19 banks poked at by these clowns, all are expected to come out clean except for Regions. Sure.
"These 19 firms collectively hold two‐thirds of the assets and more than one‐half of the loans in the U.S. banking system, and support a very significant portion of the credit intermediation done by the banking sector," says the report. The report does not mention the $200 trillion in derivatives exposure attributed to $WFC, $BAC, $JPM, $GS, and $C. Of course not.
Key points of the (special) accounting method (maybe the AICPA Board of Examiners should add a 5th category to the CPA exam? FAR, AUD, BEC, REG, and (special)?):
- For securities held in the available‐for‐sale and held‐to‐maturity portfolios, institutions were instructed to estimate possible impairment relative to net unrealized losses at year‐end 2008
- Firms were allowed to diverge from the indicative loss rates where they could provide evidence that their estimated loss rates were appropriate
- Although the likelihood that unemployment could average 10.3 percent in 2010 is now higher than had been anticipated when the scenarios were specified, that outcome still exceeds a more recent consensus projection by professional forecasters for an average unemployment rate of 9.3 percent in 2010.
05-01-2009, 06:37 PM
#4
With The Resistance
Joined APC: Jan 2006
Position: Burning the Agitprop of the Apparat
Posts: 6,191
Oh, and try the macro setting on your camera.
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