Regulators are wrapping up bank stress tests, the worst-case-scenario reviews of bank strength.
According to Nouriel Roubini, the stress tests won't tell us much.
Stress tests require that banks show what would happen if things got really bad. If the economy worsened and house prices continued to fall, would a bank be able to stay on its feet?
The bank stress tests require assumptions about how bad things could get: unemployment goes to X, house prices fall by Y, economic growth is Z. Unfortunately, Roubini says that the economy is already worse than the pessimistic assumptions. In other words, we're already there.
The bank stress tests will give us some useful information, but they may not have included enough stress.
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