The Federal Reserve announced yesterday that 17 of the nation's 18 largest banks could survive a severe economic meltdown. The Federal Reserve estimated that these banks had enough reserve capital to lose upwards of $462 billion dollars and could still survive if the economy were to enter another recession similar to the one we just had.
Of the 18 banks tested by the Fed, only Ally Financial, the former finance arm of General Motors (GM), would sustain big enough losses to potentially put it out of business. All of the other banks would have enough capital to make it through. That leads to today's poll question...
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I have watched several western US banks suffer through this "stress test" and have seen some give up their federal charters to become state controlled banks rather than put up with the federal dictates. How can any feceral bureaucracy dictate such a diverse country?
The stress test does not include the derivative risks the big banks are holding, which run in the trillions, and are greater than the annual GDP. That's why the stress tests are a total joke. The derivative bets could bring down the world economy if one of those dominoes fall, and begins the chain reaction, which would make previous recessions and the Great Depression pale in comparison.
There is not a bank in the world which is technically solvent. All have more off balance sheet risk than they can effectively cover. The so called Shadow banking system incorporates all such risk including derivatives is estimated at approx $63trillion is an accident waiting to happen. Until this is addressed by government and regulatory authorities on a world wide basis stress tests are totally meaningless and are are indeed "Smoke and Mirrors"