Last year's stress tests were a great idea — but let's never do them again.
That was the somewhat contradictory message last week from Comptroller of the Currency John Dugan who simultaneously said the tests had helped shore up confidence in the financial system but that more of them would undermine it. Speaking at the Federal Reserve Bank of Richmond on Thursday, Dugan first praised the stress tests, saying they were vital in saving the system last year.
"The stress test proved to be the most significant and successful policy proposal of the new administration to address the financial crisis," he said.
He went on to say that the tests of the top 19 financial institutions supplied clarity and confidence to the market, resulted in more capital at many banks and were an appropriate measure of the crisis' severity. He even defended the public nature of the tests, which many said would undermine confidence in the banking system.
Still, Dugan said that, despite their success, no more stress tests should be done because they were too difficult to execute and would undermine confidence. "Routine disclosure of negative supervisory information — especially when that information is based on imperfect tests related to uncertain future events — could generate the type of confidence problems that it is our job as supervisors to prevent," he said.
Overall, Dugan said, last year was unique and the stress tests were appropriate because taxpayer dollars had been used to support the banks.
Though the "comprehensive horizontal stress test proved to be just the right prescription for the unique and extraordinary uncertainty we faced last year," he said, "the issues I've just mentioned make me reluctant to begin conducting such tests routinely as the cornerstone of our supervision."
Income tax season means it is open season again on Tim Geithner for the IRS troubles that pestered his confirmation as Treasury secretary.
But how do you bring it up to his face?
Take a lesson from Washington Post business columnist Steven Pearlstein, who interviewed Geithner last week at a luncheon of the American Society for News Editors.
Pearlstein first disarmed the Treasury secretary by describing what he called the "Geithner Rally" of the past year in which the financial markets have soared and the much-loathed bank bailouts began returning profits.
The columnist then pressed harder on Wall Street's culture of greed and Chinese currency manipulation; by the end it looked as if Geithner might squeak out of the session without any personal gibes. But it was not to be. The second of only two questions from the roomful of journalists raised the issue of tax simplification, and Pearlstein did not hesitate to throw down the gauntlet: "You got into problems a few years back when you did your own taxes: Did you do your own taxes this year, or did you get a professional?" he asked.
"Thank you for raising that," Geithner responded. "I have an excellent accountant."
The nomination of Sarah Raskin, Maryland's commissioner of financial regulation, to the Federal Reserve Board appears imminent, according to sources.
Raskin was one of a trio of likely nominees mentioned by the White House last month for one of three vacant spots at the central bank.
(The others are Janet Yellen, president of the Federal Reserve Bank of San Francisco, who is expected to be nominated as the Fed's vice chairman, and Peter Diamond, an economics professor at the Massachusetts Institute of Technology, who will probably get the third vacant Fed governor seat).
Raskin has been Maryland banking commissioner since August 2007. Previously, she was a managing director at Promontory Financial Group and was banking counsel to the Senate Banking Committee.
John Dalton, the president of the Financial Services Roundtable's Housing Policy Council, was elected to the board of directors of the White House Historical Association for a term beginning April 28. Dalton, 68, a secretary of the Navy during the Clinton administration, is among four directors from Decatur House who are to join the board after the recent merger of the two preservation groups. The association is a nonprofit organization that helps preserve and maintain public rooms in the White House.