The New York Times reports that the White House will publicly disclose the results of the stress tests of the 19 biggest banks in the country.
The obvious reason for not disclosing the results of the stress test is the fear that it could lead to a self-fulfilling prophesy: Banks deemed to be poorly positioned for a prolonged economic downturn will experience withdrawals, fleeing employees and less access to credit, making them more likely to fail -- or at least threatening their ability to compete.
But the administration apparently believes that not disclosing at least some information from the stress tests would create too much uncertainty and lead to rumors and bank runs. In addition, well-capitalized banks like Goldman Sachs (NYSE: GS) and Wells Fargo (NYSE: WFC) have been signaling their confidence, putting pressure on other banks to make similar moves -- optimistic earnings forecasts and plans to repay TARP funds -- even if they're really not in a position to.
A lot of people will criticize the plan to disclose information about the stress tests, but I think it's a good move: Providing more information to investors is the right thing to do, and it makes sense for investors to pump their funds into well-capitalized banks instead of poorly-financed ones.
The real test now will be whether the federal government is willing to stand by the results of the stress tests and let the banks with poor prospects for survival fail. If they don't do that, these stress tests really don't serve any particular purpose.
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Reader Comments (Page 1 of 1)
4-15-2009 @ 10:53AM
Judy Lynn Ferguson said...
President Obama promised transparency and that is what the American Public expected. It can't be any worse than it already has been. After all it should be better they where pumped billions of our tax dollars and never lent a dime of it to anyone, no they took and purchased other banks, and invested the money in foreign Countries. It is very unfortunant that we the American Citizens where penalized for all of the predatory lending, sub-prime lending, swaps, hedging, derivatizing, securitizing, and all the other crazy risky betting and trick these Corporate Greeders lined their pockets only to all this Country to go bankrupt. I want to know and every American should know exactly the truth about the Corporated King Pens, and the lobbyist hustlers on Capitol Hill. It is way too much corruption in the United States and these people should be known for their deeds.