Biggest Banks Sue the Federal Reserve Over Annual Stress Tests (cnbc.com) 58
A group of banks and business groups are suing the Federal Reserve over the annual bank stress tests. From a report: The Bank Policy Institute, which represents big banks like JPMorgan, Citigroup and Goldman Sachs, is joining the American Bankers Association, the Ohio Bankers League, the Ohio Chamber of Commerce and the U.S. Chamber of Commerce to file the suit, which they said aims to "resolve longstanding legal violations by subjecting the stress test process to public input as required by federal law."
The groups said they don't oppose stress testing, but that the current process falls short and "produces vacillating and unexplained requirements and restrictions on bank capital." The Fed's stress test is an annual ritual that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends. After the market close on Monday, the Federal Reserve announced in a statement that it is looking to make changes to the bank stress tests and will be seeking public comment on what it calls "significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements."
The groups said they don't oppose stress testing, but that the current process falls short and "produces vacillating and unexplained requirements and restrictions on bank capital." The Fed's stress test is an annual ritual that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends. After the market close on Monday, the Federal Reserve announced in a statement that it is looking to make changes to the bank stress tests and will be seeking public comment on what it calls "significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements."
Banks don't like the stress test (Score:5, Informative)
Because they fail it.
That's reason enough to keep it. The banking and financial sector is one of those industries with which you can be pretty sure anything they don't want is good for you.
Re: Banks don't like the stress test (Score:4)
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Government run banks are fine. Just not a monopoly. And no favoring your own bank over private banks.
Either that, or banks shouldn't be allowed to invest in any non-financial entity. Which would make loans quite difficult.
Credit Suisse failed yet passed the test earlier (Score:2)
There's not really a way to determine if the banks are solvent since if any major one fails, it will domino effect make multiple other major banks insolvent.
Failure (Score:2)
Because they fail it.
Because:
1. The requirements on capitalization keep changing
2. The changes are not clearly explained
3. Little guidance is offered as to how to comply with the changes
4. It's not explained why the changes are made or what they are based on
There has been a shift in how a lot of government regulation has been done. It used to be an agency would create regulations, and offer guidance on how exactly to be in compliance with a regulation. They have been getting skimpy with the guidance as of late.
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Billion dollar banks with entire floors of lawyers are having trouble interpreting these regulations? I call bullshit.
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having trouble interpreting these regulations?
Once again, Upton Sinclair illuminates the circumstance: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
I doubt, however, that there is no truth to the charges. Regulating capital requirements should not involve high frequency changes that can plausibly be accused of being arbitrary and difficult to understand. So obviously this has become yet another avenue of political pull for politicians, banks and their beneficial interests.
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It all depends on the regulations, and how they're written, and how they're conceived to begin with. For an example of how poorly (and confusingly) written regulations can be, take a look at California sales tax a few years back, when they decided that yes, food should be tax free, but "junk" food shouldn't. For a while, if you bought on package of Twinkies, it was taxed as "junk" food, but if you bought a whole case of the exact same item, it wasn't, because bulk food was exempt. Maybe. Nobody could really
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That's actually quite possible. Most user application interfaces are ambiguous even with maximum intent to be plain. If someone is using a lot of "you know what I mean" in their explanations, nobody can understand what they mean.
Lawyers aren't really good at understanding regulations, just at predicting how the courts will interpret them. (And at predicting what the courts will accept as an "honest mistake".)
Is the test a regulation? (Score:5, Insightful)
The Fed wants to keep the details secret and vary them frequently so the banks aren't over optimizing to the test. This makes senset, for example with standardized crash testing it is common for cars to perform great on the exact crash scenario tested for, but poorly on off-nominal crash scenarios that occur in the real world.
On the other hand, secret laws and regulations are antithesis to free society because how can you justly expect anyone to follow rules when you won't tell them what the rules are. And since the banks are required to modify their behavior if they fail these tests, then the tests are effectively regulations.
A fair solution would be to have the test published ahead of time, but still change frequently adapting to what the Fed perceives as gaming of the test. The problem is that going through the normal regulation process with comment periods and such takes a good two years at least, and the Fed would like to move faster than that.
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You simply do it the way they do exams. You set the parameters for what banks should be doing, and then randomly test a subset of them. The bank can't know which parts will be tested so has to prepare for all of them.
It's fair because the parameters are published. They are whining that they just want to know what is on the test and only prepare for that.
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Because they fail it.
That's reason enough to keep it. The banking and financial sector is one of those industries with which you can be pretty sure anything they don't want is good for you.
Is that a fact? The stress tests my bank does on its own are supposedly more stringent than the federally mandated ones. That agrees with what the article says: the current test "falls short".
And while I don't understand all the nuances of hedging, my understanding is that this stress testing doesn't necessarily mean a bank needs to have a larger cash reserve. It may mean the bank may need to balance their investments so for example if the Yen goes down, they have balanced investments that will rise and fal
'restrictions on bank capital' (Score:3)
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Too big to fail (Score:2)
Re: Too big to fail (Score:2)
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Lets make immortal corporations, grant them legal personhood, create a judicial system that will enforce psychopathic mandates (shareholder lawsuits for not ruthlessly pursuing profits at all means), give them corporate welfare, and then never jail or kill them.
How might this turn out?
Noooooo (Score:5, Informative)
S&L scandal, bailed out by taxpayers
Recession of 2008, bailed out by taxpayers
Sorry, you guys have proven you can't be trusted. Now does the Fed need more oversight from Congress? Yes.
Re: (Score:2)
So they should not fix anything? (Score:2)
Did you read the complaint? Do those sound like safe to ignore situations?
Do I want to only do what they say blindly? Nope. But who would?
This was just "hey, something seems wrong here" right? Or did I miss something? I didn't understand why they made this statement publicly. Why didn't they just contact the agency and see what can change? There must be a process in place to hear from industry. If there isn't... start one.
Misleading (Score:1)
return in investment (Score:1)
Big banks want a return on their purchase of the Supreme Court. Curious considering what the Federal Reserve is.
It's because Trump (Score:2, Insightful)
I'll remind you of several things:
1. These regulations were passed to stop another 2008.
2. The incoming president is going around saying we should invade Panama and make Canada the 51st state. Yeah, it's funny and all, but the markets don't like uncertainty.
3. The tariffs and billionaire tax cuts are going to spike inflation and
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I know nobody here wants to hear it ("why does rsilvergun make everything so political!!!) by MMWs they're doing this because the DOJ and Supreme Court won't fight back.
I'll remind you of several things:
1. These regulations were passed to stop another 2008.
2. The incoming president is going around saying we should invade Panama and make Canada the 51st state. Yeah, it's funny and all, but the markets don't like uncertainty.
3. The tariffs and billionaire tax cuts are going to spike inflation and the federal reserve will respond with interest rate hikes, all but guaranteeing a recession w/o a ton of efforts by the President to stop it. A president who in theory can't run again...
4. Crypto currency is being integrated into our banking system and economy in much the same way 2008's mortgage backed securities were...
Even one of the 4 above could trigger a recession. All 4? At once? We're looking at a Depression.
And all 4 are only possible because of politics. Like it or not, everything's political. Sticking your head in the sand doesn't change that.
Your comments ignore the crux of the issue: the toxic involvement of the U.S. Chamber of Commerce and big banks in dictating fiscal policy for their own benefit. Let us be clear: this lawsuit is not about protecting the economy or ensuring financial stability—it is about dismantling safeguards put in place after the 2008 financial crisis, safeguards designed to prevent exactly the kind of predatory capitalism that groups like the U.S. Chamber of Commerce champion.
The 2008 Crisis and Stress Tests: The
Um.. it's kind of hard for the USCC to lobby (Score:2)
Yes, everything is political. Politics is just the process by which we structure power. Banking regulations is part of that. Money is, after all, power.
I think you're doing a "motte and bailey" where you try to use the US chamber of commerce and the basic notion of greed to distract from and get away from the political implications of a Trump presidency and how it's creating a sort of Gold Rush by Big Business to strike down as many laws as they can while there's a DOJ that is favor
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*at this point, only far left-liberals and maga-hat wearers take trump seriously. Every day he announces something crazy that’s designed to trigger and exhaust people. Steve Bannon called it “flooding the zone with s&%t”. That’s a legit quote. The markets have discounted what Trump says by about 99% at this po
OK, I can see a solution. (Score:2)
Agree that banks can withdraw from stress-testing on agreement that they and their deposits are no longer insured, that they contractually agree to no bailouts or support in any future crisis, and that they agree that both the bank and all employees voluntarily waive any and all relief on taxes.
In other words, you're exempt from rules in exchange for being exempt from what those rules ultimately back. Both sides of the coin or neither, you never get to have just one.
Re:OK, I can see a solution. (Score:5, Informative)
We want to go forward, not backwards in time. The banks held the economy hostage in the mid to late 2000's to obtain bailouts. We want to avoid that situation again with bank stress tests and regulation.
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https://www.cnbc.com/2024/07/0... [cnbc.com]
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investment banks
Ahhh...you mean a casino.
I think you're going to have a hard time breaking up the banks as all the big US ones are both, commercial and investment. I have no idea how they obtain their capital, but I assume a hefty chunk is from the commercial side aka people's hard earned money.
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https://en.wikipedia.org/wiki/... [wikipedia.org]
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While I mostly agree with the rugged individualism applied to big banks, the problem is the banks aren't the ones with the problem when they fail. The FDIC was invented because people lost their money when banks went under and there was little to no recourse to get it back. If there is no deposit insurance, it's the late 19th century all over again.
We want to go forward, not backwards in time. The banks held the economy hostage in the mid to late 2000's to obtain bailouts. We want to avoid that situation again with bank stress tests and regulation.
You are absolutely right that we want to avoid another situation like the 2008 bailouts, and the FDIC was indeed a safeguard against the kind of financial chaos that bank failures caused in the 19th century. But let us not forget that even the FDIC was compromised by predatory capitalism. Remember the Keating Five scandal? Senator Dennis DeConcini and others allowed the Savings and Loan crisis to spiral because of corrupt influence, showing just how vulnerable even well-intentioned countermeasures like the
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No, their deposits need to be insured because that is someone else's money. The banks themselves can go under.
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That is the current situation (banks do get taken over and sold to other banks, to the loss of their current owners, on a regular basis.
This is, apparently, in need of reform.
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Isn't it more profitable to donate a few tens of millions to political campaign funds, purchase favorable laws, party with client money, and then get taxpayer bailouts when they hit a losing streak?
Privatized gains and socialized losses?
That's the point of Bjg Government.
The purpose of a thing is what it does. Words of protest don't really matter.
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That's certainly a model for corruption of "Big Government". Unless, of course, you are just self-defining the term.
On the other hand, it's easier to spend a few tens of hundreds of dollars across many small governments to achieve the same effect. That's the point of Small Government, at least in this corruptibility experiment you're hypothesizing.
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Provided those agreements are signed under penalty of perjury on the part of the executive staff of the bank, and the lack of FDIC insurance is so obvious at every interaction that the customers cannot possibly not know it, and the perjury is vigorously prosecuted every. single. time when they come whining for a bailout anyway, sure.
My calculator would drop into scientific notation to calculate the odds of any of that happening, and then round to zero.
These banks are idiots (Score:2)
The reason they didn't want they tests is they want to pick up more rush then that can handle. It will be 2008 all over again if they get rid of these and 2008 was the reason stress tests were instituted
The reason (Score:3)
This is why so may US financial institutions failed in 2008 and no Canadian ones did.
Our banking regulations actually have teeth.
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This is why so may US financial institutions failed in 2008 and no Canadian ones did.
Our banking regulations actually have teeth.
Hear, hear. Canada’s resilience during the 2008 financial crisis—when no banks failed—is a testament to the power of sound regulation, conservative lending practices, and higher capital requirements. Unlike the fragmented and often lax oversight in the U.S., Canada’s centralized regulatory system enforced tighter safeguards, avoided risky mortgage-backed securities, and maintained a culture of risk aversion among financial institutions. This lawsuit by U.S. banks and their allies se
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A corporation has become bigger in the government's view than any number of voting citizens. That is a problem. If you don't see it, be glad you are as confused as you are.
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In one paragraph you are siding with corporations and then in the other you are saying one person one vote.
I side with corporations because I "own the means of production". Including some banks. A few shares of them anyway.
One person, one vote. Except that's not what the MSM wants. Because they make bundles of money selling manufactured consent. Don't like it? Fix the campaigning and voting systems. Except that you'll never get your ideas in front of Congress or the voters. Because the NYT and WP won't stand for a challenge to their income model.
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How to detect a kook: Someone who uses the term "MSM" pejoratively and un-ironically.
If its not explicitly in dodd-frank (Score:2)
The adults in the room know exactly how this is gonna play out. “No rules” means that the party rages until something breaks or catches on fire.
They don't seem to understand the word (Score:2)
"How can we pass a test if you don't tell us exactly what the questions are first?" - US Banks
Despite this stupidity, I am confident they will get their way anyway.
Ok but next time you fail (Score:2)
Big surprise... (Score:1)
Cost Effectiveness (Score:2)
It's cheaper to lobby politicians to change the rules than to be resilient against a stress test.
I done wanna (Score:2)
"... restrictions on bank capital."
"I done wanna save for a rainy day", declares US banks.
Why is this public? (Score:2)
Why aren't they talking to the agency that regulates them and dealing with it normally? Does government really ignore all input from industry on stuff like banking stress tests?
Or did they need to get outcry from the public too? Why would they think the public would care enough to matter (by bothering the government)?
And they don't even get into details to explain much beyond the results seeming onerous and results being questionable to them (varying oddly). At first I thought they meant a performance/th