A new rule set that should remain behind after the crisis, says Mallaby

OP-ED: "Stress Tests Forever," by Sebastian Mallaby, Washington Post, 8 May 2009.

Good piece from a guy I always read. Explores the question of the amount of capital required for banks and how views of that issue have changed over time. Main point: this needs to be an ongoing debate so frequent use of stress tests keep the issue out in the open where it needs to be . . . revisited time and again going forward because we don't know what the answer should be in the years ahead.

Good ending:

The administration's stress tests are the template for this new approach. The measure of their success is not whether they cause the rally in bank stocks to continue, pleasant though that rally is. The real question is whether the administration forces the banks to raise the capital they are lacking, even at the risk of ending the market rally -- and then whether it makes stress-testing a permanent feature of bank regulation.

Comments

[Chris]

The real question is whether the government going forward closes banks down when they are insolvent! The real question is whether the government going forward prosecutes fraud! The real question is whether the American people will ever find out that they have thus far had five to twelve trillion dollars stolen from them directly from the Treasury and indirectly through the Federal Reserve since Bear Stearns was liquidated.

[Chris]

Karl Denninger is someone you should add to your blog roll if you're not reading him already.http://tinyurl.com/o4uw8m