A stressful test

The controversial bank stress tests underway at the Federal Reserve may prove tough to keep under wraps.

As federal regulators manage so-called stress tests on the nationâÄôs 19 largest banks, they are urging banks to keep results hush-hush until all tests are complete. But in this atmosphere of peaked investor interest, it is unlikely the results âÄî which outline a bankâÄôs health and need for federal capital amid the worst recession since the 1930s âÄî will be kept hidden for long. According to economist Lou Crandall, the Obama administrationâÄôs goal with the stress tests is in part to âÄúput a seal of good bookkeeping on these banks,âÄù many of whom had been assigning grossly inflated equity value to toxic legacy assets âÄî mortgage-backed securities and the like. The tests position the firms amid various economic scenarios, some rosy, some pessimistic. If a bank is found to be relatively weak, it will be given 6 months to raise private capital. If it fails, the Treasury says taxpayer money will be available. Under a best case scenario, momentum would find its way to clogged credit markets, and the transition from unsustainable financial practices to normalcy would hasten. But the Obama administration may have opened a can of worms with the Geithner Plan and stress tests. Wells Fargo Chairman Richard Kovacevich called them âÄúasinine.âÄù He wants the results to remain secret. Ultimately, if taxpayer money will be protecting the irresponsible, greedy banks who âÄúfailâÄù the stress test, the results of the test, once compiled, must be made public. Our central bank expects to release the results for all 19 firms in late April; be prepared for the results âÄî theyâÄôll eventually leak.