The results from the Treasury's "stress tests" of the 19 largest U.S. banks will be announced on Thursday in what will also be a stress test for the American public. James Kwak nicely describes the fine line that Treasury will need to walk in deciding how much of the results to share with the public. This is an interesting case in which one could debate the relative merits of full transparency versus "enlightened" (giving Geithner and company the benefit of the doubt) leadership. If the tests demonstrate that the majority of bank assets are safely held in sufficiently capitalized banks, this might be a great boost for the financial sector and help accelerate a resumption of consumer and business lending. Yet, many seem to fear this will not be the case. Then the question becomes: how much bad news can the American public handle?
Kwak points out that it has been in the Treasury's interest until now to treat banks as "one undifferentiated mass," i.e. not elaborating on the distinction between the healthy and less healthy banks. We also may think it has served us, the American people, to think of the financial system in this way. But hopefully Thursday's announcement will reveal enough detail about particular banks for us to disentangle ourselves from this paralyzing picture of the system as one, irreparable blob. Treasury will have to make some tough calls, it seems. Hopefully they will share this news with the rest of us so we can all prepare for the tough clean-up process ahead.
Thanks are due to Blake for reminding me that I, too, have a blog.