Insiders at the Federal Deposit Insurance Corp. (FDIC) are sniping that the so-called "stress" tests that Treasury Secretary Geithner wants to conduct on some of the nation's largest banks are a "pointless exercise" for public relations purposes.
The banking regulators, in interviews with the New York Post, claim that the Geithner plan is not a credible way to assess how much additional cash battered banks will need.
The reviews are being conducted by the Treasury Department and the Federal Reserve on all of the nation's 19 biggest banks, including Citigroup, Bank of America, and JPMorgan Chase.
"It's a sham," one source told The Post, adding that the stress testing is in actuality an "open-book, take-home exam."
The Treasury and Fed are ostensibly trying to determine how banks might perform under the assumption that unemployment ratchets up and overall economic conditions worsen.
Sheila Bair, chairman of the FDIC, and others are said to argue that the remedial test won't be able to determine accurately how much each bank will need, according to the report.
Banks found in sound shape now may later go to Uncle Sam for another bailout if the markets worsen.
FDIC officials declined to comment on the record.
The transparency of the testing is also being questioned since the assumption is that the Treasury won't disclose which banks need more cash to remain stable and which will not.
Treasury expects to release some of its findings at the end of this month.
Private sector economists are willing to go on the record with criticism of the Geithner plan.
The bank stress tests are “a complete sham,” says William Black, a former senior bank regulator and savings and loan prosecutor, and currently an associate professor of economics and law at the University of Missouri, as reported by Yahoo Finance.
“It’s a Potemkin model. Built to fool people,” says Black.
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