This week can be regarded as decisive for our economy as the US Government will release the results of the stress tests on banks. Although many have said that the financial crisis will end soon, this isn’t even close to the reality. The most optimistic estimations show that regional banks, Citigroup and the Bank of America have only a few problems left, and that the overall banking system is good. However, this is not true because even so, all banks might need more capital depending on the stress tests results.
The International Monetary Fund has released a report which showed a loss of $2.7 trillion from US loans which is double the amount they estimated over six months ago. The problem is even worse if it were to believe RGE Monitor who estimated a $3.6 trillion loss considering the fact that the banking system is “near insolvency in the aggregate.”
We hope that the stress tests results will shot that the financial system is improving, but the regulators have shown that the unemployment rate has hit 8.1%, while their worst case scenario was of 7.9%. Also if we keep on going on the same track, the unemployment rate will hit 10.3% this year, and consider the fact that this was the worst case scenario for 2010 if it were to believe some leaks of the stress tests.
I think that the stress tests results are a little optimistic and this is just not the time for that. We don’t need to be optimistic, we need to work, and we don’t need to let banks to get away with this. Another bailout? Who knows, but what I do know is that we cannot bail them out forever. Let’s just wait for the stress results.
Image credit: Eideard
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[...] the 19 banks under stress tests will need more capital. We’ve already told you yesterday that we cannot bail them out forever, but it is said that the Bank of America needs $34 billion to fulfill its shortfall, but Scott [...]