Irrespective of whether one thinks the stress tests used to test the U.S. banking system is a sham (10% unemployment is not a worst-case scenario), the fact of the matter is these tests MUST show some differentiation in order to be credible. Vincent Reinhart, a former Fed official now at the AEI, makes this case in the video below with Bloomberg News.
Most of us have fixed on whether the stress tests will be credible or not. In order to be credible, there will have to be stress test winners and losers. Now, mind you, the government has to be very careful about the stress exercise hurting some institutions, so it will tread carefully. This is very much a political exercise. So, having heard Reinhart voice his view, my question is whether the winners and losers will be picked based on real financial differentiation or based on other more political factors.
Related posts:
- Black: Stress tests and the Big Lie
- Stress tests reveal Citi and BofA need more capital, but you knew that already
- What the stress tests reveal about Obama’s thinking on banks
- BofA, Citi, Wells and GMAC biggest losers in stress test leaks
- Meredith Whitney: Regardless of stress tests, banks will still need more capital
