Why Stress Test?
The stress tests are designed to boost confidence in the market by providing a thorough assessment of bank assets and liabilities as well as a determination of how well-capitalized banks need to be to continue making loans over the next two years. The program determination may mean that banks have to raise more capital (already 10 of the 19 are rumored to need it), but at least the review puts a finite amount on the need. Further, the government has provided a means of support for those banks that are unable to raise capital in the private markets though Ben Bernanke told Congress in a Q&A following testimony on Tuesday that he does not expect banks to need government assistance. Of course, some have questioned the “stressfulness” of the stress tests. Nouriel Roubini, a Professor at NYU’s Stern School of Business, is one of many who suggests that the “adverse situation” used in the analysis is not really adverse but likely. NAR currently forecasts unemployment for 2009 at 9.5 percent w
