Perverting the 'stress tests'
It appears that banks will get a "do over" on the government's stress tests, which are meant to determine whether the banks have enough capital. Once the tests are completed, weaker banks will need to raise money in the private markets. If they can't, the federal government may step in with additional cash.
But when is a test not a test? When the person or entity being tested gets to contest results and challenge the conclusions of what is supposed to be an accurate and objective evaluation.It has been widely reported that banks will get results of the tests on Friday. But the interaction with the government will go further than that. According toThe New York Times, "The banks will then have until Tuesday to dispute any of the findings." It is hard to see how that does not pervert the entire process.
Allowing banks to dispute results in private means that they could potentially dispute them in public. That could be a mess. If several of the financial firms decide to tell their shareholders that the process is flawed, then test results for all 19 banks being evaluated could be thrown into doubt.
Aside from that little concern, letting banks attack the government's opinions is fine.
Douglas A. McIntyre is an editor at 24/7 Wall St.