A Hazy Shade of Banking

Let me get this straight.

There was an article in today’s New York Times that had the following passage:

“…the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say.

That is the good news. The bad news is that many of the largest American lenders, despite all those bailouts, probably need to be bailed out again, either by private investors or, more likely, the federal government.”

If banks are in better shape than most people think, why are they still going to need to receive more money from the federal government? As far as I can tell, most people think that the banking industry is Wily E. Coyote, who’s already two steps past the edge of the cliff and looking down at nothing but air between them and the ground below. If they are in better shape than that, let’s chalk that up as a moral victory. Where I get lost is right around the point where it says that despite banks being in better shape, more funds will be needed to prop up these institutions.

This assessment of the banking industry stems from the ongoing stress tests that regulators are conducting on the institutions. Banks who fail the stress test will require more funds. If “many” banks are going to require more funds, then it appears that “many” are not going to pass the test and be able to weather any further economic deterioration on their own. If that’s the case, how can they be on better shape than we think?

Hold on for one minute; I’m dizzy.

Either banks are capable of handling a longer and deeper recession, or they aren’t. It is this kind of doubletalk that helped get the industry into this mess in the first place. Where is the transparency?