All 23 U.S. banks which hold over $100 billion in assets passed their stress tests, Federal Reserve Board Vice Chairman for Supervision Randal Quarles announced June 24. Reassuringly, the Fed cooed that in the 2021 exam all 23 institutions remained “well above” required capital levels during a hypothetical economic downturn.
Given the methodology that the Fed used for the tests, which do not take account of the real condition of the banks, the only way a bank could fail the test is if it had been closed for 10 years. The Fed’s evaluation for derivatives risk is premised on the assumption that in a crisis the derivatives market is liquid—or could be provided with liquidity—and that most failing derivatives contracts could be safely “unwound” or disposed of. Reality says otherwise.
But this part of the report is just prelude to its fantastical conclusion. The Fed’s announced plan of March 2020 that imposed temporary limits on banks buying back their own stocks, or paying out dividends, would now be lifted, given that the banks are in such great condition. Banks can henceforth speculate freely, pay large dividends from both what they have looted from the economy and from fictitious earnings, without worrying about it. Buy back stock until the wee hours of the morning. Let the good times roll.
The June 24 New York Times ran the headline, “Stress Tests Passed, Banks Are Primed Po Pay Shareholders.”
It is so nice to have a central bank that is run by people with the mentality of four-year-olds. This is one more reason why, as Lyndon LaRouche said, the Federal Reserve Board should be nationalized and turned into a National Bank that would issue abundant credit for the development of the productive economy and man’s cognitive powers. Oh, that LaRouche; he takes the life out of the party.
