Wednesday, May 6, 2009

Stress Test and Banking

We're nearing the end of the wait for the Fed's "Stress Test" results. After all of the ballyhoo and predictions and estimates, we'll finally "know" the results. However, to most of us, they really won't tell us anything more than what we'd find reading a research analyst's report.

We have already heard that "none of the 19 banks will be allowed to fail." Ben Bernanke told lawmakers, "to the extent that there are banks that need capital, our hope is that many of them will be able to raise capital through either private equity offers, or through conversions and exchanges of existing liabilities." That it is their "hope", but what it really means is that the government will keep them afloat with additional capital injections if necessary. The weaker banks will most likely be absorbed, one day soon, by a healthier organization when they can afford to make the purchase. The stronger banks will survive on a slow road to recovery with the help of government insured debt, if needed.

The government really couldn't have let the largest banking institutions fail during this crisis. Although the practice of private enterpirse being kept alive by the government is abhorrant to a pure capitalistic structure, we all recognize we don't operate in such an environment. However, even with all of the government intervention, the strongest companies that have made the best decisions will still survive.

No comments:

Post a Comment