The Federal Reserve has released the results of its latest "stress tests" of the country's biggest banks — two days early. Why two days early? Marketplace's Heidi N. Moore had the best quip: The Fed didn't have much choice, after J.P. Morgan Chase jumped the gun on the planned Thursday announcement and showed Wall Street its report card.
Four banks flunked the test: Citigroup, Suntrust Banks, Ally Financial and MetLife, which isn't really a bank but an insurance company with bank-like businesses. Citigroup is the most worrying of that group, as some advance handicapping had it sailing through the Fed tests. Not so, as it turns out. This may remind some of the revelations, from Ron Suskind's controversial recent book about the Obama economic team and the financial crisis, that the White House at one point wanted to shut Citigroup down. Treasury Secretary Tim Geither reportedly stalled the President to avoid executing that decision.
There's likely to be some debate about whether the Fed's stress tests were really all that stressful — although according to the Washington Post, the "scenarios" tested were pretty rough, involving 13 percent unemployment, share values being halved, and and a 21 percent fall in real estate.
Regardless, the big U.S. banks apparently successful rebuilding of their balance sheets over the past four years has enabled them to raise dividends and authorize buybacks of shares, both of which will boost the banks stock-market performance. Wall Street already pushed bank stocks higher today on the news.
It's probably not all that reassuring that the four banks that couldn't take the Fed's heat are still a major factor in the national economy. They'll have a public-relations challenge in the months ahead. However, barring a major shock to the global system, they should continue to improve their balance sheets. Citigroup pretty much has to: it's a global enterprise with nearly $1.9 trillion in total assets — more than the measly trillion in assets of the other three flunkees combined.