Now that the results of the stress tests of US banks are out, there is a lot of relief. This is unfounded since $75 billion, which is what the tests say is needed to recapitalise banks, is a lot of money. But even more important, it is not clear that these tests reveal the whole picture. Reports in several leading newspapers suggest that this figure is the lowest in the range of what is actually required. Banks were given the results of these tests many weeks ago and what followed was a lengthy period of negotiation in which bank economists tried to educate Fed officials on why they were not in as bad a shape as believed.
In the case of Citigroup, according to the Wall Street Journal, the initial capital requirement was estimated at around $35 billion while the final figure put out was just around $5 billion. That is, the stress tests are about as real as the profit figures put out by a host of banks over the past few weeks, including Citigroup.
Mahesh Mehta, Mumbai
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