[ad_1]
Bloomberg News / Landov
The Federal Reserve's conclusion that all the larger banks had enough capital after their stress test is "absurd," said former Treasury Secretary Larry Summers on Saturday.
The conclusion undermines the Fed's efforts to strengthen banking supervision, he said at the Boston Fed monetary policy conference.
In June, the Fed said all 35 largest banks had reached the regulatory minimum for capital, even after suffering the so-called "severely adverse" stress test.
See: Fed says all banks have met minimum capital requirements after stress tests
Summers noted that the stress test scenario included the Dow Jones Industrial Average
DJIA, -0.31%
down 60%, the unemployment rate again reached 10% and housing prices fell by a third more than during the 2008 recession. In addition, under this scenario, each bank maintained its existing dividend and share buyback programs.
For the Fed to say that no bank "would have capital deficits" after this test, "is a comically absurd conclusion," Summers said.
He said the results "run counter to any credibility that could otherwise be attached to the very important efforts to strengthen financial regulation".
Summers said that banking regulations and capital standards should remain strict, as the period of low interest rates should persist. This environment stimulates asset prices, he noted.
Source link
