The folks over at MoneyBeat have noticed that only two banks failed the Fed’s stress tests this week, and they have a few ideas why. Maybe it’s because Deutsche Bank and Banco Santander have appointed pretty low-rent boards to their U.S. subsidiaries. Maybe it’s because they’re not taking the test seriously enough. Maybe it’s because they’ve pulled a few too many numbers out of their asses. Maybe it’s because they’re not showing the improvement teacher expects of all of her students. Or, you know, maybe it’s because “Deutsche” means “German” and Santander is a city in Spain.
The Fed didn’t say much in the way of specifics about why the banks failed Wednesday, other than faulting them for widespread and significant problems and describing broadly the criteria it uses to evaluate firms. But the Fed has detailed its “qualitative” criteria in general terms. It’s these criteria that appear to have tripped up foreign-owned firms, especially at those banks taking tests for the first time, like Deutsche Bank this year and other foreign-owned firms in years past.