The Treasury Department has hinged a big part of its plans for the banking industry on a so-called stress test, but has revealed almost nothing about what the test might entail.
The government's latest lifeline for major banks, announced Monday, has one main qualification: A bank has to essentially fail the stress test, which is meant to determine if it could survive a worse-than-expected decline in the economy.
Treasury Secretary Tim Geithner has described the stress test only as "a more consistent, realistic and forward looking assessment about the risk on balance sheets," administered by "the government agencies with authority over our nation's major banks." The testing, part of an initiative called the Capital Assistance Program, is to begin Wednesday, the Treasury said; it's unclear if it will reveal more about the tests then.
Critics say the Treasury's vagaries are stoking uncertainty in the markets. Some suspect that the agency itself doesn't know what the test will measure, and is rolling out the test now only because it panicked after bank stocks spiraled last week.
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"This is getting almost comical – the lack of information, the rules of the game changing hour by hour,”"said Chris Mutascio, an analyst at Stifel Nicolaus.
"We can make the case that any of our companies could 'pass' or 'fail' these potential tests because we have no idea what the regulators and Treasury are going to consider," added Baird analyst David George.
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