Pointless banking stress test

Again, the “experts” can’t get it right. The stress test is 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 rule change that will eliminate QSPEs (most them anyway), forcing banks to repatriate or add assets to their balance sheets. Only the banks have neither the reserves nor the sufficient capital to do so.
 
The Federal Reserve estimates that by 2010 (when FAS 140 goes into effect) $900 billion in loan securities will have to be added to balance sheets, including $700 billion in risky assets, although estimates range from $5 to $ 7 billion in QSPE assets. total. Coincidence that Treasury Secretary Geitner wants to withdraw $1 trillion in assets from banks by the end of this year?
 
Once again, government meddling threatens the economy. Forget getting the banks to finish, they are terrified at the prospect. No wonder the securitization market has frozen: any new activity will go back to the banking agent next year with all the new regulatory consequences.
 
For all the bluster about making banks lend, it is not the regulated banking system that is broken. The securitized shadow banking system is bankrupt. 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 greater transparency, not regulation. If investors knew what was happening to these assets in 2006 and 2007 (and how the structures actually worked), there would never have been a crisis and no government involvement would have been necessary.
 
Now that the forces of contraction are beginning to slow, the last thing this economy needs is weak or negative credit growth. And the real danger is an even narrower reinterpretation of FAS 140 that forces much more than $900 billion on the backs of the banks. Doing so crowds out new loans at a rate much higher than 1 (which $900 billion in old loans makes it impossible to initiate about $1.3 trillion in new loans that the economy desperately needs).
 
By my calculations, putting aside the effects of FAS 140 for a moment and the changes to FAS 157 (mark-to-market) that occurred on April 2 would be more than enough to generate increases in credit losses due to the recession. The banks agree, which is why they are disputing the results. That leaves the attempt to regulate QSPEs and the shadow banking system as the only functional reason for stress testing.
 
Judging by the results, even the Fed admits that FAS 140 will kill lending, thus the need for large amounts of new capital. This has nothing to do with the recession and everything to do with more regulation.