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Bert Ely: Bank Stress Tests A Fiasco

By Dan Weil   |   Thursday, 07 May 2009 04:16 PM

The bank stress tests definitely aren’t helpful for solving the financial crisis and may be harmful, experts tell CNBC.com.

Results are due this afternoon. Leaks indicate the conclusion will be that while several major banks need large capital infusions, none of the 19 institutions tested are in dire straits.

“This whole process has been a fiasco,” says independent bank analyst Bert Ely.

"There are strongly different opinions on the conditions of these banks. This has aggravated it without necessarily settling anything. The majority of the sentiment in the market is that the stress tests results (will be) too optimistic."

By giving an overly rosy view of the banks’ health, the stress test results may inhibit necessary changes in the banking industry, experts say.

“I think the government’s policies have all run against each other,” says Paul Miller, banking analyst at FBR Capital Markets.

“They keep throwing things out there to see what sticks.”

There is a good chance that banks in need of additional capital will simply convert preferred shares into common to accomplish the trick.

Ely sees such a strategy as smoke and mirrors. “That does not put a single additional dollar into the bank,” he points out.

Others blast the stress tests too.

“We should never have publicly announced that we were doing stress tests. ... All we did is stir up the markets,” former FDIC Chairman William Isaac tells Bloomberg.

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