FT is reporting that “US Bank Dividends Set to Double.’ That’s because the Fed is supposed to release the results of the latest stress tests this week. This most telling line in the story is “no bank is expected to fail.” How much stress can a stress test be if no banks fail? This sounds like more phony no-stress stress tests.
But, stress tests are not supposed to be cover for banks to make huge payouts. They are supposed to test the banks’ ability to survive another crisis. Banks are still facing huge liabilities from foreclosures, litigation, derivatives and declining asset prices. They are also facing a slowdown in business because the three drivers of global growth, China, the US and Europe, are all slowing down and that is made worse by ongoing worldwide austerity. This is no time for banks to be running down their capital.
But, that’s what the so called stress tests have become: an excuse to authorize banks to make huge payouts and run down their capital cushion. Very sorry state of affairs.