Banking & Finance

Government Wants Bank "Stress Test" Results To Be Secret

water-lilies5The Federal Reserve keeps saying that many of its dealings with the financial industry must remain secret. Congress keeps insisting that no such secrets should be kept from the taxpayers who are funding the massive bank bailout.  But, Bernanke must believe that taxpayers are too poorly educated and ill-informed to handle complicated data on how companies such as Citigroup (C) and Bank of America (BAC) are doing. If the government’s information about the banks shows problems, it might frighten both investors and the general public.

According to Bloomberg, the Fed is telling banks to shut up about the recent “stress tests” run on their balance sheets. Official results may not be available until late April after most first quarter results are out, but what bank CEO can avoid telling his shareholders that it looks like the company will be around for a few more quarters? The news agency writes that “If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets.

The Fed’s argument is bogus. Whether the markets find out about “stress test” results before or after this earnings season will not matter. Banks which get poor marks and will be required to raise large amounts of new capital will be hammered by the market, whether the data comes out tomorrow or in 60 days. Perhaps the government is hoping that an improvement in overall economic news will make the markets less prone to panic. But, the overall numbers may not get better.

It may be best to keep the information about the tests under wraps permanently.

Douglas A. McIntyre