Tags: Bove | Stress | Tests | Recovery

Bove: Stress Tests Threaten US Economic Recovery

Monday, 28 Nov 2011 08:04 AM

Federally mandated stress tests ordered on the country's banks will rattle the nation's fragile recovery because they require those institutions to stash money aside preparing for what-ifs instead of funding job-creating loans, says Dick Bove, a banking analyst at Rochdale Securities.

Under the Dodd-Frank financial reform law, the Federal Reserve must conduct streets tests, but this test in particular will require the largest banks to prove they can survive 13 percent unemployment, another 21 percent drop in home prices and a 52 percent plunge in the stock market.

That's a little harsh, Bove tells CNBC.
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"The banks are back, the banks are in good shape, the banks are ready and able to assist the economy. Then along comes this annual abortion of a stress test," Bove old CNBC.

Dick-Bove-3-thumb-200.jpg
Dick Bove
(Rochdale file photo)
"You're going to see that they're going to have to stop lending money, they're going to have to dump loans, they're going to have to increase cash positions."

When a bank sets aside capital to cover for bad loans, it cannot lend.

"They're going to have to increase capital ratios by shrinking their balance sheet," Bove adds.

"Everything they've achieved, everything that we've got to move us forward gets stopped and put in reverse by the stress test."

Other analysts say terms of this particular stress test show the government is worried about exposure to the global economy.

"They are clearly worried about the issue of Europe," says Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial, according to Reuters.

"In a time of risk aversion and concern, you need transparency."

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Federally mandated stress tests ordered on the country's banks will rattle the nation's fragile recovery because they require those institutions to stash money aside preparing for what-ifs instead of funding job-creating loans, says Dick Bove, a banking analyst at Rochdale...
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2011-04-28
Monday, 28 Nov 2011 08:04 AM
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