Banks Pass Stress Tests But That Doesn’t Mean Much: William Cohan
If the U.S. economy fell into another recession, American banks would likely face a loss of $462 billion, according to the the Federal Reserve's annual examination of the health of U.S. banks. Seventeen of the nation's largest banks would survive the economic crisis, according to the Fed.
Of the banks tested, Ally Financial is the only institution that is at risk of collapse in the face of another downturn. Surprisingly both Goldman Sachs (GS) and Morgan Stanley (MS) barely received a passing grade and JPMorgan Chase (JPM) performed only slightly better.
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Citigroup (C) outperformed all of its peers after failing the test in 2012. Last year the test results showed that a total of four banks (including Citi) would not withstand an economic shock; the other three were Ally, MetLife (MET) and SunTrust (STI).
What does this mean about the state of the U.S. banking system? William Cohan, Bloomberg TV contributing editor, joined The Daily Ticker to discuss just that.
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"Stress tests do not equal safety in the banking sector," says Cohan. "I don't think these stress tests are indicative of anything...they're designed to make us feel a little bit better about ourselves."
That said, Cohan does believe the banking sector is stronger than it was during the financial crisis. "Basically we are better off than we were then but that does not mean that it couldn't happen again."
This is the third round of stress tests performed since 2009 in accordance with Dodd-Frank.
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