Wall Street Is Whining Yet Again

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File this one under “Yes, we almost destroyed the world, but how long are you going to hold that against us?”

Bank trade groups and industry advisers are debating the possibility of legally challenging the Federal Reserve in an attempt to force changes to annual “stress tests” of the biggest U.S. lenders, people familiar with the talks said….The discussions are at an early stage and…have centered on legal strategies that would allow a challenge to the stress tests, with much of the focus on their opacity and how the Fed changes certain aspects of the exams each year.

….The exams arguably have made banks safer by forcing them to better measure risks they face. They also dictate the amount of capital banks can return to shareholders, in turn influencing returns on equity and share-price valuations….Fed officials have disclosed more in recent years about how the tests work. They have described in more detail the mathematical models used to determine how much money banks would lose under the tests, pointing out changes from year to year.

But the central bank still unilaterally designs the doomsday scenarios that are simulated during the tests. It also doesn’t disclose all the details of the models, which keeps banks guessing about their results. The central bank says that if it gave banks more information about the models, bankers might be able to game the tests.

First off, are banks allowed to chat with each other about strategies for suing the Fed? It seems like the kind of thing that competitors aren’t supposed to do. But maybe banks are different.

That aside, what a bunch of whiners. Big banks have a pretty good idea of what the Fed expects, and history demonstrates pretty clearly that if you make the requirements too explicit banks will indeed bend their every synapse toward figuring out how to game the rules. That’s largely what banks around the world did during the aughts, and it’s a big reason they weren’t prepared for the housing crash.

An alternative, of course, is to simply put in place crude leverage and capital requirements and make them very explicit indeed. But banks don’t like that. Why? Because it’s hard to game.

So buck up, Wall Street. Millions of high school students every year take the SAT even though their test prep courses only prepare them for approximately what it will be like. They make do with that, and so can you.

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THE TRUTH...

is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

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