What Stress Tests Did and Didn’t Accomplish

By Cheyenne Hopkins and Joe Adler


Even before the results of the stress tests of the country’s largest banks are released, a debate over what the exercise accomplished has begun. Verdicts run the gamut, with some arguing the results will reassure investors and a nervous public about the health of the banking industry, give the Treasury Department valuable time and help the government prevent future problems. But others insist the tests exacerbated the crisis by confusing people and delineating which institutions are “too big to fail.” The tests also bought Treasury more time to implement other parts of its recovery program, and made it clear that the government is committed to fixing the industry’s problems, some argued. “The expectations in February that the tests may somehow make everyone feel comfortable about” Citigroup Inc. were “never going to occur,” said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. “The goal, I think, is to make sure the government has a handle on the systemically important banks and has the means” to restore their health. “I hope Thursday night we will walk away with no loss of market confidence and some improvement in it.”