By James Kwak Despite the much-publicized black eye to Citigroup’s management, the bottom line of the Federal Reserve’s stress tests is that every other large U.S. bank will be allowed to pay out more cash to its shareholders, either as increased dividends or stock buybacks. And pay out more cash they will: at least $22 … Continue reading Stress Tests, Lending, and Capital Requirements
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I’m curious to know how banks’ 2009 final results compare to the projections in the stress tests. My suspicion is that JPMorgan and Goldman did better than projected, but Citi may have done worse. Ideally you would compare both the new loan losses recognized over the year and the profits from current operations. But there … Continue reading Remember Those Stress Tests?
From Felix Salmon: Why did Treasury switch from TCE to the even-more-obscure common capital metric? Quite possibly to help Bank of America and Citigroup get the amount of capital they needed to raise down to a number within the realms of possibility. After all, these tests were designed so that they couldn’t be flunked. And … Continue reading Stress Tests: The Questions Continue
There was been a lot of drama over the last week, which we have certainly contributed to, about the stress tests. It was all very exciting, finally seeing numbers purporting to show how healthy or unhealthy each bank was. But let’s recall what the point of this whole exercise was. Depending on your perspective, the … Continue reading Stress Tests: What Was the Point Again?
The post was co-authored by Simon Johnson and James Kwak. When the stress tests were first announced on February 10, bank stocks went into a slide (the S&P 500 Financial Sector Index fell from 133.13 on February 9 to 96.18 two weeks later), in part on fears that the stress tests would be a prelude … Continue reading Stress Tests and The Nationalization We Got
The public relations campaign packaging the bank stress tests is kicking into high gear and our professional information managers are really hitting their stride. They face, of course, a classic spin problem: you need to get the information out there, but you don’t want to be too definitive on the first day or soon after – if … Continue reading Is Everyone Confused Yet? (Bank Stress Tests)
The big news on the banking front this week will be the public release of the stress test results, currently scheduled for Thursday (originally it was supposed to be today). Over at The Hearing, I wrote an overview post recapping the context for the stress tests and the current dilemma the administration faces: whether to … Continue reading Stress Tests for Beginners
By Simon Johnson How much damage to the financial system should we expect from what is now commonly called the foreclosure morass, the still-developing scandal involving document robo-signing (and robo-dockets), completely messed up mortgage paperwork and high-profile inquiries into accusations of systematic and deliberate misbehavior by banks? The damage to banks’ reputation is immeasurable. They … Continue reading An Early Stress Test For The Financial Stability Oversight Council
There is nothing you can teach Wall Street titans regarding the timing of news flow. Stephen Friedman, the former head of Goldman Sachs, resigned last night as chair of the New York Fed’s board, after committing essentially a rookie error. In December/January, he traded the stock of a company (Goldman) overseen by the NY Fed, while … Continue reading The Other Stress Test (For Bankers)
See NYT.com’s Room For Debate. I like what Yves Smith says. Post your reactions there or here. By Simon Johnson Update (by James): My last pre-results thoughts are at Foreign Policy.
The bank stress tests are beginning to create a perception problem, but not – as you might think – for banks. Rather the issue is top level Administration officials’ own optics (spin jargon for how we think about our rulers). At one level, the government’s approach to banks – delay doing anything until the economy … Continue reading All About Optics (Predicting Stress Test Outcomes)
We have written a lot, both together and individually. This is an incomplete list, since it’s hard to keep this page updated. Books by Simon and James: 13 Bankers (Pantheon, 2010) White House Burning (Pantheon, 2012) Books by Simon: Jump-Starting America (with Jonathan Gruber) (PublicAffairs, 2019) Books by James: Economism (Pantheon, 2017) Take Back Our Party (Strong … Continue reading Read More
By James Kwak There is a common phenomenon in legal disputes over the value of something, be it a company, a piece of land, or a person’s expected lifetime earnings. Each side hires an “expert” who produces an estimate based on some kind of model. And miraculously, every single time, the expert for the party … Continue reading Skew
By Simon Johnson On June 1, 2008, Timothy F. Geithner – then president of the Federal Reserve Bank of New York – sent an e-mail to Mervyn A. King and Paul Tucker, then respectively governor and executive director of markets at the Bank of England. In his note, Mr. Geithner transmitted recommendations (dated May 27, … Continue reading The Federal Reserve And The Libor Scandal
By Simon Johnson Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster. But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated – everyone, in this view, has become … Continue reading JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking