The Fed plays nation’s chief bank analyst

By Dave Clarke and Rick Rothacker

The release this week of a report card on the health of the largest U.S. banks will put under scrutiny one of the strongest tools in the regulatory arsenal. With the major provisions of the 2010 Dodd-Frank financial oversight law still being implemented, the Federal Reserve’s stress tests have been the biggest cudgel to force banks to guard their balance sheets and not submit to the “financial crisis amnesia” recently cited by Treasury Secretary Timothy Geithner. Poor performers in the test results expected by Thursday could be required to take steps to improve their capital positions, although analysts do not expect dramatic demands from the Fed.  Many analysts have said the earlier tests proved more effective than anticipated with some calling them a marked improvement in how the government oversees the industry.  “The Fed is taking on the new role of bank stock analyst in chief,” said Karen Petrou, managing partner of Federal Financial Analytics.  The data released will show how much capital a bank has and the size of losses it suffers through the end of 2013 under the test conditions. The tests apply to the 19 large banks who have been through the process before as well as 12 other institutions that have more than $50 billion in assets.