Tags: Bair | bank | Stress | Tests

Former FDIC Chief Bair: Stress Tests Didn't Address All Risks

Friday, 16 March 2012 08:02 AM

Former Federal Deposit Insurance Corp. head Sheila Bair says the Federal Reserve’s bank stress tests didn't include all risks, such as those for liquidity and interest rates if the Fed raises rates.

"It's good for the market to have that information" about individual banks and their ability to withstand a financial downturn but "analysts and investors should do their own due diligence,” Bair told CNBC. “Our regulators are not infallible."

"I still think we need to be somewhat cautious here, especially with banks,” says Bair.

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“They are stronger but in terms of capital distribution, the Fed and the regulators seem to be very cautious to insure the capital cushions remain strong.”

Bair says she favors breaking up the big banks to "unlock better shareholder value" by creating "easier to understand pieces," but doesn’t sense Washington will force big bank breakups.

"I do think the Fed and the FDIC have the legal authority to require them to simplify and rationalize their legal structures," Bair says. "That would at least make them easier to understand and easier to resolve if they do at some point fail down the road."

"I think hard and fast capital rules applied to everyone along the line of Basel III... [are] very important to reduce a risk of a failure and help protect us all down the road if we get into another down cycle.”

Peter Elston, Asia Strategist at Aberdeen Asset Management, says results from the Fed's bank-stress tests aren't to be trusted.

"I think a lot of banks are still overstating assets and they haven't recognized problem loans, to the extent that they should have done and it's very difficult to trust numbers," tells CNBC.

"All this stress test really does is it probably makes people slightly less skeptical than they were before and you get a bit of a rally," Elston says. "The market doesn't trust the numbers."

Editor's Note: Wall Street Insider Exposes Death of Main Street America

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Friday, 16 March 2012 08:02 AM
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