The Fed, Stress Tests and Distorted Reality on Wall Street

BuyBacks Increase Stress Test

By Craig Wilson

This post The Fed, Stress Tests and Distorted Reality on Wall Street appeared first on Daily Reckoning.

“Reality is merely an illusion, albeit a very persistent one.”

The quote, largely attributed to Albert Einstein, while not directed at Wall Street and the Federal Reserve perfectly describes the latest stress test debauchery.

Hidden behind the Fed’s second interest rate hike in 2017, the U.S central bank released a report on the health of Wall Street. The rosy scenario findings concluded that nearly all of the major Wall Street banks passed the latest round of stress tests.

Then comes reality to tear down that illusion, persistently as ever.

The troubling news found in the stress tests’ Comprehensive Capital Analysis and Review (CCAR) is that it appears the Fed believes that Wall Street is actually stable.

In the report from late June, the U.S central bank found that, “its review of the capital planning practices of the nation’s largest banks… did not object to the capital plans of all 34 bank holding companies participating…”

The only bank that the Fed required a more elaborate capital plan was Capital One Financial. The Fed said that the bank holding company has been asked for another round of review, “requiring the firm to submit a new capital plan within six months that addresses identified weaknesses in its capital planning process.”

What that means is that the big banks on Wall Street, which had once been on the verge of complete failure a decade ago, are now receiving the “all clear.” While in practice some banks may have made strides to build up the amount of reserves held – instability still remains.

Too big to fail has not receded. In fact, much of the risk has only grown further. Now with the go ahead from the Fed, Wall Street looks to take full advantage.

Wall Street Unleashes Buybacks, Stress Tests Placebo Effect Sets In

The biggest bank on Wall Street, JPMorgan Chase & Co., has wasted no time acting on the green light from Chair Janet Yellen and the Federal Reserve Board.

Via Bloomberg

After the Fed’s stress test reporting, JPMorgan has announced plans to raise its repurchasing program to $19.4 billion over the course of the next year. That’s a 90% increase over the year prior.

Following the trend on Wall Street, Citigroup has announced plans to repurchase an estimated $15.6 billion while Bank of America announced plans to repurchase up to $12 billion.

While it is well within the right of Wall Street banking institutions to buyback stocks, the stress test signals do not clearly show that real, permanent safety measurements put in place have made the economy more secure.

The U.S government made this clear less than a year ago in an investigation that found severe holes in the monitoring system.

The non-partisan governmental agency responsible for evaluation and investigative services, the Government Accountability Office (GAO), indicated just how faulty the Fed’s stress test procedure was. The GAO reported:

“The Federal Reserve also has not conducted …read more

Source:: Daily Reckoning feed

The post The Fed, Stress Tests and Distorted Reality on Wall Street appeared first on Junior Mining Analyst.