At least one US bank will need more capital

If in fact there is only one bank, it should be easy to figure out which bank is in trouble. Should that single bank happen to be any other than a former high-flier who sent their CEO packing with tens of millions, it will be very surprising. Meanwhile, more criticism of Geithner’s Treasury Department.

“There are two things that are terribly wrong,” former FDIC Chairman Bill Isaac told “First, that was publicly announced. I can’t imagine what Treasury was thinking when it made that move. It has been causing incredible angst in the markets … The second big problem is that the Treasury is directing the stress testing, apparently with direct involvement of the White House at the highest levels. Bank regulation by law is supposed to be carried out by the independent banking agencies without any political interference.”

What’s more, analysts say the tests face a fundamental credibility issue. The tests can neither be too tough nor too soft or the outcome might be suspect; at the same time, some have speculated that at least one bank would have to come up short .

The government has repeatedly said the tests are not “pass/fail”, but analysts say it is inevitable that the results create something of two-class system of institutions, something resembling the weak and the strong, which investors will then factor into stock prices.

Having a transparent environment is OK for me and the problem for too long has been a lack of transparency. Even today, we could and should do much more to let Americans see the system they are keeping afloat. The second point about political involvement as opposed to independent involvement is a fair criticism. The Obama economic team is made up of Wall Street insiders and Geithner has yet to prove his willingness to play hardball with Wall Street. Trust in his efforts remains sketchy, at best.

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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