Don't stress the stress tests

Once again, the Federal Reserve is announcing preliminary results of the so-called “stress tests” for banks.

Officially known as the Comprehensive Capital Analysis and Review (CCAR), the annual report is aimed at measuring whether big financial institutions have enough money to withstand a financial crisis…and if they have adequate risk controls. The CCAR was created by the Dodd-Frank legislation that came about following the 2008 economic meltdown. The final reports come March 11.

But now, seven years after the collapse, do banks still really need to be so closely watched? Yahoo Finance Columnist Rick Newman has no problem with that.

“I think the stress tests are a great idea,” he says. “Look at bank profits. They’re extraordinary. This is after they basically wrecked the global economy. I’m shedding no tears for the big banks.”

Yahoo Finance’s Aaron Task feels the banks really can’t claim that this oversight is making life difficult for them.

“They’ve done pretty well,” he points out. “So it’s hard to argue they’ve suffered over the onerous arm of regulation when the profitability has kicked back to be above what it was before the crisis.”

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Newman likes the idea that regulators are keeping large financial institutions under more control.

“I think that it’s great that we’re trying to push banks back to just being banks,” he says. “If you want to do something else, we have hedge funds, private equity firms, all that stuff is there. We don’t need big banks doing it.”

Newman adds that he’s not buying the arguments by the banks that we all benefit when they can be more than just banks.

“These claims that financial engineering in New York and London has tremendous benefits for the broader economy-- I think that’s mostly nonsense,” he says. “I think that those benefits stay inside the financial industry.”

And Task says as far a Wall Street is concerned, the big issue for banks isn’t stress tests or regulation, it’s what the Fed is doing.

“The market is mainly focused on what’s going on with rates,” he notes. “A low, zero-rate environment is not good for the financial stocks.”