An example of how foolish the periodic use of so-called Stress Tests are for evaluation of banks’ strength:
Firstly, publicizing the results as in the past is dangerous to the economy. The term itself is a no-no because of its psychological implications with regard to the economy and the stock market.
Secondly, little of the public, and only a few in the financial community, fully know what each test is supposed to reflect.
Furthermore, in an emergency, the amount of capital a bank has can be wiped out because of mark-to-market accounting principles that may be applied.
In the past. these actions caused the very financial emergencies they supposedly were meant to avoid.
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