On the surface, a lot is riding on the "stress tests"  the top banks are undergoing at the behest of the Federal Reserve, which would like to make the results known sometime this month. Most assume banks that do not pass will not be able to pare their capital bases to hike their dividends, which most are eager to do. But ProPublica questions whether the current tests are meaningful tests of capital adequacy.

It says that oddly enough it's "as if the banks knew their results, even before the testing was complete." Of course, "banks ought to have a good idea of the results. They came up with the questions--and the answers."

In this view, the Fed merely provided an economic assumption--a recession--to test their books against, "but otherwise the measures were chosen by banks themselves. The Fed just vetted them. Seems like a low bar."

To be sure, the Fed is not holding these tests out as stress tests along the lines those conducted in 2009, which forced some banks to boost their capital positions. It seems like a stretch to call the exercise a sham. But it does seem likely that banks will be able to hike dividends, and these tests will give them justification to do so. Of course it would be a shame if these hikes proved premature. With the economy improving, this will hopefully not happen.   

For more:
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