The stress test for the nation’s banks, suggested by regulators, is poor because it is composed of too many arbitrary factors, each of which may have weightings with only indirect relativity to each other.
Of the several factors, not one by itself is of predominant importance. The ratio of doubtful residential mortgages to capital, for example, or commercial mortgages to capital, or the types of capital, or what constitutes tier 1, or loan defaults, and which types, and potential general unemployment; all add up to figures which can become too vague when experts seek decisive answers.
Some financial official or board must still make a subjective decision to act upon such stress tests. And they can be wrong, as they have been in the recent past, in dealing with financial meltdowns.
No comments:
Post a Comment