Submitted by Rolfe Winkler, publisher of OptionARMageddon
Much has been said here and elsewhere about the stress test’s lack of credibility, especially after word emerged about “intense bargaining”over the results. Not to belabor the point, but some data may be of use.
Of the more promising developments early in the process, the Fed articulated the importance of tangible common equity as the proper measure of bank capital. Being the most stringent measure of its kind, use of TCE stood to give the tests more credibility.
But in the end, the Fed switched to a more favorable metric: “Tier 1 Common Capital”
Click to enlarge
This was just another of the administration’s many games to make banks look healthier than they really are.
It’s a shame regulators didn’t use the tests as an opportunity to reassert their control. Instead, they demonstrated yet again that banks have them totally captured…
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I had a quick look at Reggie Middleton’s site to see whether my intuitions about the banks were correct and the only conclusion I can come to is that the administration is hoping banks can earn their way out of difficulty. If one of the 19 banks stress tested gets into difficulty in the next few months then we will be right back where we started. Originally we were told there was a TCE target of around 3 percent which has been downgraded to tier 1 and they don’t really need to raise the capital anyway. False confidence can be just as damaging in my book as too little confidence.
The regulators “embrace” Big Finance. They are not “captured” by it.
Is there a quick explanation of the delta between TCE and Tier1 Capital?
This recent video with Elizabeth Warren is alternative media to go with your nice chart:
Elizabeth Warren
Capitalism Is Dead 1.1
Re: "This was just another of the administration's many games to make banks look healthier than they really are."
I'd like to pick up on a new theme for me, which is that I think America and many parts of Earth have been accustomed to the general philosophy of Smith's Capitalism and the off-hand nudges from the invisible proctologist-like hands that guide free markets.
It is in this historical context that the continuity of our society has been shaped, i.e, we as a people acknowledge that government should allow Capitalism to function with somewhat of a hands-off approach, which will allow the markets to find streams of equilibrium which will turn the engines of commerce by the most efficient means.
The engine of Capitalism however, has changed, and the power of the streams have been altered, where now, many common investors in our society believe they are engaged in Capitalism and supportive of that process — yet, these people involved in market support, are not engaged in Capitalism, but supporting Fascism and monopoly powers that are undermining free market exchanges.
>> Ahh crap, I gotta go ……
Well…so much gloom here and everywhere else. Regulators getting a flak from almost everyone….i can understand politicians have a big interest in ensuring general public gets a goody goody feeling but tell me one thing..what’s in it for Bernanke and more importantly the other members of the board?
“what’s in it for Bernanke and more importantly the other members of the board?”
Access to the revolving door between regulatory jobs and the plush sinecures/delayed payoffs in the financial industry. Nowadays they don’t even have to quit one job to take another.
"what's in it for Bernanke and more importantly the other members of the board?"
book deals & speaking fees?
I wish they had included the results of Washington Mutual! They had one of the best Tier1 capital ratio.