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Stress tests; how bad do you want to make it?
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- Category: Opinion
- Published on Monday, 18 July 2011 01:04
- Written by Jack
- Hits: 137
There are some doubts about if the stress tests are done correctly enough. If they include enough of the risks that can occur.
The way I look at it is, that you can always find something to make is more bad. If you would like to really have a solid banking industry, well then you should just put the leverage to 1. Of course this is complete nonsense to do. But from what I read from some analists, they keep commung up with worse senerios as have been used in the test.
Yes, I agree, the test could be testing more worse situations. But you should ask yourself, is it really interesting those bad situations, because you will be sure a big amount of the banks will fail. It has nothing to do with the quality of the banking system at this moment, it is only due to the situation that can occur.
If analist and rating agencies keep reminding us of all the risk that we have, yes, then it might happen.
Compare it to using your car. Yes there is a risk you will hit a brick wall. But should that be the reason that we change the speed limit to 20 miles/hour?
We are over sensitive for risk since the 2008 crisis. Warren Buffet would say, Mr Market is in a depression. If you would compare the actual situation at this moment to any given moment in the past the the outcome of the stress tests would probably have the same results. Some banks will fail. And yes, the more strict you make the test the more banks fail.
Is this really so strange?