The Great Debate UK

from The Great Debate:

Failure is the only success in stress test

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

The stress test of banks now underway in the U.S. is one exam in which failure will be the only true measure of success, at least in terms of speeding a recovery.

The U.S. will release some information about the methodology of the stress test of 19 major banks on Friday according to reports, with results slated for release in some form on May 4.

What is far from clear is if this will be some sort of self-deluding exam in which all of Treasury Secretary Tim Geithner's children are judged to be above average or whether the U.S. will take this opportunity to take real and difficult remedial action with banks that are too insolvent to play their role in the economy.

Injections of equity for those which need it should be made at the common equity level -- anything else at a severely undercapitalized bank just scares off other equity investors.