School’s out, probably for the spring and summer, possibly forever. B-schools are trying (and failing) to justify their existence in absence of their real raison d’être, networking through the medium of alcohol. The SAT’s cancelled and Advanced Placement exams have been turned into online tests of how well students can cheat in 45 minutes. University exams have either been called off or turned into opportunities for academic dishonesty.

Given all of the above, and given what good boys and girls they’ve been, and despite their eagerness to totally crush the now very-easily-crushable Federal Reserve stress tests, America’s biggest banks are wondering if they can’t just get practical credit for this year’s exams.

The annual stress tests for the biggest banks, due April 6, are meant to gauge if banks would survive a hypothetical recession that sends the stock market plunging, oil into a tailspin, loan defaults rising and unemployment to society-shattering highs…. Some economists are predicting that the current downturn could be sharper and reach farther than the worst-case scenario on this year’s test, which the Fed refers to as “severely adverse….”

The Fed on Tuesday said it would relax some examination work, particularly at smaller banks, but that big banks should still submit their plans….

Bankers are telling the Fed the results, typically released in June, will be irrelevant given how rapidly coronavirus has slammed the brakes on the economy and the unknown impact that will have on everything from consumer spending to bank balance sheets…. Some in the industry are questioning whether the Fed should cancel or delay the test, or hold off on capital-plan approvals, the people said.

Against Coronavirus, the Fed’s Banking Stress Test Doesn’t Look So Bad [WSJ]
Banks Continue to Seek Less Funding Than Fed Offers [WSJ]
How remote study is changing business school life [FT]


By Ryan McGilchrist [CC BY-SA 2.0 ], via Wikimedia Commons

New For 2019: No-Stress Stress Tests

Even Deutsche Bank won’t have to cram for this one.


Banks Pass Coronavirus Section Of Stress Test, We Think

It’s hard to say, but they can get ready to cut some dividend checks.


Goldman Ran Its Own Stress Tests On Its Mortgages And They Did Great

The Elect have their own special math and don't know what the Fed is talking about.


Stress Tests Still Happening, Banks To Get Special Treat If They Pass

Well, their investors will get the treat, but all the same.

Courtesy Federal Reserve.

GAO Asks Fed To Stress Test The Stress Test

Janet Yellen needs to solve the problem of knowledge.

Citi Will Try The Stress Test Again With A $9bn Stock Buyback

More stress tests, bleargh. I guess the news is that Citi "failed", though I can't get all that excited by that because it didn't exactly "fail" in the sense of now it's being forced to raise capital / broken up / burned to the ground. Instead it failed assuming it follows the capital plan it submitted to the Fed, which is clearly a capital-lowering rather than capital-raising plan. I ballpark it at $10bn of share repurchases and dividends,* which is ... well, it's pretty big for Citi. So they can just not do that then. Or not do quite as much of that, which seems to be their plan: In light of the Federal Reserve’s actions, Citi will submit a revised Capital Plan to the Federal Reserve later this year, as required by the applicable regulations. The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so, subject to approval by the Board of Directors each quarter. The Federal Reserve also advised that it has no objection to Citi redeeming certain series of outstanding trust preferred securities, as Citi proposed in its Capital Plan. We plan to engage further with the Federal Reserve to understand their new stress loss models. We strongly encourage the public release of these models and the associated benchmarks and assumptions. We believe greater transparency in this process will best serve all banking institutions and their shareholders as well as the international regulatory community and market participants, and will encourage a level playing field globally. There are at least two ha! moments in that snotty last paragraph. First there's the fact that the Fed had planned to release the stress test results on Thursday and got gun-jumped by Jamie Dimon. So much for Fed transparency. But also, specifically, as people are all running around suing each other about the Fed maybe kind of encouraging bank CEOs to hide material information from investors, it is odd that the Fed would have the stress test results and sit on them for two days. Imagine the scenario where Jamie Dimon, Vikram Pandit, and the Fed all know that JPM passed and was going to do a largeish buyback, while Citi failed and was going to do a ... I guess somewhat smaller buyback - and they didn't tell anyone from today until Thursday. If you sold JPM to buy C today, wouldn't you be kind of annoyed?**