The Treasury’s “stress test” for the U.S. financial system sounded like a good idea at the time. But as officials wrap up and begin disclosing the results, some critics are giving the entire process a failing grade.
Treasury officials say the comprehensive analysis of the assets on the books of 19 of the largest U.S. banks will help identify which institutions are at the greatest risk of failure if the recession deepens. By applying scenarios that simulate the impact of, say, a higher unemployment rate on mortgage defaults, the government is hoping to target aid to the banks that need it most. The test results could force banks deemed at risk to set aside more capital to cover future losses.
The idea is flawed, critics say, and the exercise has done little to shore up battered bank balance sheets and investors' confidence.
“The stress tests are, at best, a waste of time,” said Mike Holland, who heads the investment firm he founded. "At worst, they're misleading and testing the wrong things. The idea of using some level of unemployment to say whether Citigroup is not as strong as JP Morgan to me is laughable. And therefore I will be glad when this process is over."
Bank regulators are hoping to quell concerns about the stress test by releasing details Friday of how they’re being performed and offering guidance on how the results should be interpreted. The final results are expected to be made public on May 4.
Investors will be looking closely at the Treasury's assumptions. Given the complexity of the mortgage-backed assets the computer models are analyzing, there is already skepticism about how any model can forecast and identify potential problems.
The idea is flawed, critics say, and the exercise has done little to shore up battered bank balance sheets and investors' confidence.
“The stress tests are, at best, a waste of time,” said Mike Holland, who heads the investment firm he founded. "At worst, they're misleading and testing the wrong things. The idea of using some level of unemployment to say whether Citigroup is not as strong as JP Morgan to me is laughable. And therefore I will be glad when this process is over."
Bank regulators are hoping to quell concerns about the stress test by releasing details Friday of how they’re being performed and offering guidance on how the results should be interpreted. The final results are expected to be made public on May 4.
Investors will be looking closely at the Treasury's assumptions. Given the complexity of the mortgage-backed assets the computer models are analyzing, there is already skepticism about how any model can forecast and identify potential problems.
The Treasury’s “stress test” for the U.S. financial system sounded like a good idea at the time. But as officials wrap up and begin disclosing the results, some critics are giving the entire process a failing grade.
Treasury officials say the comprehensive analysis of the assets on the books of 19 of the largest U.S. banks will help identify which institutions are at the greatest risk of failure if the recession deepens. By applying scenarios that simulate the impact of, say, a higher unemployment rate on mortgage defaults, the government is hoping to target aid to the banks that need it most.
The test results could force banks deemed at risk to set aside more capital to cover future losses.The idea is flawed, critics say, and the exercise has done little to shore up battered bank balance sheets and investors' confidence.
“The stress tests are, at best, a waste of time,” said Mike Holland, who heads the investment firm he founded. "At worst, they're misleading and testing the wrong things. The idea of using some level of unemployment to say whether Citigroup is not as strong as JP Morgan to me is laughable. And therefore I will be glad when this process is over."
Bank regulators are hoping to quell concerns about the stress test by releasing details Friday of how they’re being performed and offering guidance on how the results should be interpreted. The final results are expected to be made public on May 4.
Investors will be looking closely at the Treasury's assumptions. Given the complexity of the mortgage-backed assets the computer models are analyzing, there is already skepticism about how any model can forecast and identify potential problems.
The idea is flawed, critics say, and the exercise has done little to shore up battered bank balance sheets and investors' confidence.
“The stress tests are, at best, a waste of time,” said Mike Holland, who heads the investment firm he founded. "At worst, they're misleading and testing the wrong things. The idea of using some level of unemployment to say whether Citigroup is not as strong as JP Morgan to me is laughable. And therefore I will be glad when this process is over."
Bank regulators are hoping to quell concerns about the stress test by releasing details Friday of how they’re being performed and offering guidance on how the results should be interpreted. The final results are expected to be made public on May 4.
Investors will be looking closely at the Treasury's assumptions. Given the complexity of the mortgage-backed assets the computer models are analyzing, there is already skepticism about how any model can forecast and identify potential problems.
