March 9, 2015

EVERYONE, BUT HOUSE REPUBLICANS, DESERVES CREDIT:

Give Credit Where It's Due to U.S. Stress Tests (Jon Hilsenrath, 3/09/15, WSJ)

We spend a lot of time these days reading and writing about U.S. government failures and the nasty political divisions that impede problem-solving in Washington. With that in mind it's worth pausing for a moment to recognize a bipartisan success.

Six years ago this month, with the economy in freefall and markets unstable, the Federal Reserve was deep into executing stress tests of the nation's largest financial institutions. The plan was to formally assess the resilience of big banks to a deepening shock and use funds from the Troubled Asset Relief Program to get capital into those in need of more financial buffering. The TARP law was passed by Democrats in Congress and signed by a Republican in the White House, George W. Bush. Then the stress tests were executed by a Democrat in the White House, Barack Obama, and a Republican nominee at the Federal Reserve, Ben Bernanke.

Today, the government is out of the capital infusion business, but the Fed continues stress tests, counting on the market to provide capital where needed. Banks complain about the opaque nature and cost of the Fed's annual stress testing ritual. Some supervisors wonder whether the Fed has gotten too consumed in stress test number-crunching, at the expense of old-fashioned, face-to-face supervision.

Still, it is hard to argue with the results. Since 2009, the eight biggest U.S. financial institutions have added $500 billion of capital, which works out to $10 trillion of lending capacity with a 5% minimum capital ratio.

It's not just that they were wrong about the policy, but the politics of opposition cost the party the White House.  
Posted by at March 9, 2015 6:37 PM
  

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