Bank Stress Test Nonsense
Again the "experts" can't get it right.
The stress test are about one thing and one thing only - FAS 140.
These additional cash reserve requirements are not about surviving the recession, they are about surviving the change in rules that will eliminate QSPE's (most of them anyway), forcing banks to repatriate or add assets to their balance sheets.
Only banks have neither the reserves nor sufficient capital to do so.
The Federal Reserve estimates that by 2010 (when FAS 140 is scheduled to take effect) $900 billion in loan securities will have to be added to balance sheets, including $700 billion in risky assets - even though estimates are from $5 to $7 trillion in QSPE assets total.
Coincidence that Treasury Secretary Geitner wants to remove $1 trillion in assets from banks by the end of this year? Once again government meddling is threatening the economy.
Forget getting banks to lend, they are terrified of the prospect.
It's no wonder the securitization market has frozen - any new activity will come crashing back to the banking agent next year with all the new regulatory consequences.
For all the bluster about getting banks to lend, it's not the regulated banking system that is broken.
The securitized, shadow banking system is broken.
Securitization is not the enemy here, the downfall of the system was the type and quality of assets, not the process by which they were dispersed.
Fixing this market is relatively easy through increased transparency, not regulation.
If investors knew what was going into these assets in 2006 and 2007 (and how the structures really functioned) there never would have been a crisis and no need for government involvement.
Now that the contracting forces are starting to decelerate, the last thing this economy needs is feeble, or negative, credit growth.
And the real danger is an even narrower reinterpretation of FAS 140 that forces a heck of a lot more than $900 billion onto the backs of the banks.
Doing so displaces new lending at a rate much greater than 1 (that $900 billion in old loans makes it impossible to initiate about $1.
3 trillion in new loans the economy desperately needs).
By my calculations, setting aside the affects of FAS 140 for a moment, and the changes in FAS 157 (mark-to-market) that occurred on April 2 would be more than sufficient to carry loan loss increases due to the recession.
The banks agree, which is why they are disputing the results.
That leaves the attempt to regulate the QSPE's and the shadow banking system as the only functional reason for the stress tests.
Judging from the results, even the Fed admits that FAS 140 will kill lending - thus the need for huge amounts of new capital.
This has nothing to do with the recession and everything to do with increased regulation.
The stress test are about one thing and one thing only - FAS 140.
These additional cash reserve requirements are not about surviving the recession, they are about surviving the change in rules that will eliminate QSPE's (most of them anyway), forcing banks to repatriate or add assets to their balance sheets.
Only banks have neither the reserves nor sufficient capital to do so.
The Federal Reserve estimates that by 2010 (when FAS 140 is scheduled to take effect) $900 billion in loan securities will have to be added to balance sheets, including $700 billion in risky assets - even though estimates are from $5 to $7 trillion in QSPE assets total.
Coincidence that Treasury Secretary Geitner wants to remove $1 trillion in assets from banks by the end of this year? Once again government meddling is threatening the economy.
Forget getting banks to lend, they are terrified of the prospect.
It's no wonder the securitization market has frozen - any new activity will come crashing back to the banking agent next year with all the new regulatory consequences.
For all the bluster about getting banks to lend, it's not the regulated banking system that is broken.
The securitized, shadow banking system is broken.
Securitization is not the enemy here, the downfall of the system was the type and quality of assets, not the process by which they were dispersed.
Fixing this market is relatively easy through increased transparency, not regulation.
If investors knew what was going into these assets in 2006 and 2007 (and how the structures really functioned) there never would have been a crisis and no need for government involvement.
Now that the contracting forces are starting to decelerate, the last thing this economy needs is feeble, or negative, credit growth.
And the real danger is an even narrower reinterpretation of FAS 140 that forces a heck of a lot more than $900 billion onto the backs of the banks.
Doing so displaces new lending at a rate much greater than 1 (that $900 billion in old loans makes it impossible to initiate about $1.
3 trillion in new loans the economy desperately needs).
By my calculations, setting aside the affects of FAS 140 for a moment, and the changes in FAS 157 (mark-to-market) that occurred on April 2 would be more than sufficient to carry loan loss increases due to the recession.
The banks agree, which is why they are disputing the results.
That leaves the attempt to regulate the QSPE's and the shadow banking system as the only functional reason for the stress tests.
Judging from the results, even the Fed admits that FAS 140 will kill lending - thus the need for huge amounts of new capital.
This has nothing to do with the recession and everything to do with increased regulation.
Source...