This is what will be making the headlines the next few weeks:
The Obama administration will begin taking a hard look at the financial condition of the country’s 20 biggest banks this week to judge whether they could hold up even if the downturn worsens further than policy makers already expect.
These reviews of the banks’ books, known as “stress tests,” are heightening a dilemma for Obama aides about how candid they should be about the health of banks like Citigroup and Bank of America. The tests are expected to take several weeks.
Bank shares were pummeled last week, partly because of rumors that the government might nationalize some of the banks. Officials consider many of the top 20 banks “too big to fail.”
The tests come as anxiety is building among investors and industry analysts about the Treasury Department’s broader plan to shore up the banking system. People familiar with the plan, which has been criticized by executives and analysts as vague, say its crucial details may not be ready for another few weeks.
In yet another sign of distress for the banks, Citigroup officials were in active talks with federal regulators on Sunday night about plans for the government to take a bigger ownership stake in the bank, according to a person close to the talks.
I’m not even going to bother trying to figure out what all is entailed in the stress tests, because I will never figure it out. Instead, I am just going to ask the following question- Why haven’t we been doing this all along?
And if you read the folks at naked capitalism, calculated risk, and elsewhere, most of them have been hinting for some time (or at least I have perceived them as hinting this) that many of these banks simply are insolvent and will not pass these stress tests. Then what?