Wall Street just gave itself a golf clap
REUTERS/Regis Duvignau
On Thursday the Federal Reserve announced that 31 banks passed the first party of their annual two part stress test. Wall Street gave itself a golf clap.
Unfortunately, that first part of the test doesn't mean much for the banks in the way of their ability to survive the next financial Apocalypse.
To understand why you have to understand the way the stress test is structured.
Each test is a different financial disaster. This year's happened to be a scenario in which corporations started defaulting on their debt.
So there's your first caveat right there - a bank t if it doesn't have a ton of corporate debt liability on its balance sheet.
Then there's then fact that this test is in two parts. On Thursday we saw the results of Dodd-Frank Act stress testing (DFAST). On March 11 we'll get the results of the Comprehensive Capital Analysis and Review (CCAR) test.
DFAST just tests to see if you have enough cash to survive the particular disaster scenario the Fed dreamed up. The only question is - is this bank adequately capitalized?
But there's way more to surviving a financial disaster than being capitalized, and that's what CCAR tests for. To survive a financial end of days, a bank has to have good risk management, streamlined compliance operations, and a bunch of other qualitative processes and controls in place.
That's what CCAR tests for, and that's where banks fail. That's where Citigroup failed last year. And when a bank fails CCAR, the Federal Reserve won't let it buy back shares or pay out dividends. Naturally, this really annoys shareholders.
This year the story is whether or not Citigroup can get its act together this year. Additionally, Deutsche Bank, which only recently came under the Fed's oversight, very well may fail CCAR.
- People intolerant of other religions are more likely to reject science, study asserts
- 7 reasons why cucumber can be your summer weight loss friend
- 8 refreshing kulfis you must try this summer
- Adani Enterprises Q4 net falls 37%; incubating businesses show strong momentum
- India, New Zealand hold Joint Trade Committee meeting to deepen relations
- Nothing Phone (2a) blue edition launched
- JNK India IPO allotment date
- JioCinema New Plans
- Realme Narzo 70 Launched
- Apple Let Loose event
- Elon Musk Apology
- RIL cash flows
- Charlie Munger
- Feedbank IPO allotment
- Tata IPO allotment
- Most generous retirement plans
- Broadcom lays off
- Cibil Score vs Cibil Report
- Birla and Bajaj in top Richest
- Nestle Sept 2023 report
- India Equity Market