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Elizabeth Warren Calls for New Bank Stress Tests

Posted by Larry Doyle on February 11, 2010 9:34 AM |

The initial Bank Stress Tests run by Treasury Secretary Geithner were largely a sham. I questioned as much last April in writing, “Bank Stress Tests: Major Sham?”:

As with any test, the results are only meaningful if the process and proctor have unquestioned integrity. The proctors for the Bank Stress Test are none other than Treasury Secretary Tim Geithner and Fed chair Ben Bernanke. Why is a testing authority of the magnitude of FDIC, led by Sheila Bair, not more involved in the process? Ms. Bair is the one individual in our country with the greatest level of interaction with and understanding of the student body, that being the banking industry as a whole and individual banks specifically.

What does the FDIC, led by Ms. Bair, have to say about the upcoming Bank Stress Tests? The New York Post provides a CHILLING perspective:

The stress tests the government are about to conduct on some of the nation’s largest banks is being blasted by insiders at Sheila Bair’s Federal Deposit Insurance Corp., who say it’s a pointless exercise that’s more sizzle than steak.The FDIC’s basic beef with the stress test is that it is not a credible way to assess how much additional cash beaten-down banks will need to weather what many Wall Street experts predict will be more losses in the coming months.

The tests are conducted by the Treasury Department and the Federal Reserve on the nation’s 19 biggest banks, including behemoths Citigroup, Bank of America and JPMorgan Chase.It’s a sham,” one source told The Post, describing the test as an “open-book, take-home exam” that doesn’t actually work.

While Geithner, Bernanke, Obama et al have openly declared victory in saving the banking system, there is a very credible voice in Washington calling for a new round of Bank Stress Tests. Who has the gall to make such a demand?

Elizabeth Warren.

Warren stated as much in a Bloomberg interview I watched this morning. She is calling for new tests, not only for the 19 large money center banks but also the regional and community banks, as well. Why is Warren calling for this reexamination? Her primary concern currently centers on the pending and expected losses within the commercial real estate space through 2013.

When asked how her call for new tests has been received by Tim Geithner and team at Treasury, Warren succinctly used the term, “resistance.”

No surprise there . . . but also no transparency there, either.


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