Next week, the banks find out whether the Fed will allow dividend payouts or buybacks under capital planning exercises that are part of the stress test process.
Banks complain that the Fed is being unrealistic...
On the other side, Anat Admati, a professor at Stanford University, argues that there is “no way that the stress tests address the full interconnectedness of the system”.
Although the tests now include a scenario for the biggest Wall Street banks involving the collapse of their biggest counterparty, she says: “You can’t predict what will happen in that case. If one counterparty fails there might be 10 other counterparties failing at the same time.”