How the Fed’s Covid stress test got stuck in the middle
By Sharon Thiruchelvam
What’s the purpose of a bank stress test? That might sound like an overly philosophical question in the middle of a global pandemic, but it’s the question that market participants, together with former and some current regulators, have ended up asking after the results of this year’s Comprehensive Capital Analysis and Review (CCAR) were published in the US on June 25. …“I doubt any dividend payments will scuttle any large US bank, but the Fed has now positioned itself to take the fall should any of them tremble under continuing macroeconomic stress or market fragility,” says Karen Petrou, managing partner at consultancy Federal Financial Analytics. “In 2008, the banking crisis was the banks’ fault; this time, folks will say it’s the Fed’s.” She warns that the Fed’s handling of this year’s stress test “may have lost all the critical credibility it gained when the 2009 exercise rescued the banking system”.