http://www.economist.com/news/finance-and-economics/21599788-handful-banks-are-caught-short-feds-annual-stress-test-harsh-light
This article of the economist talks about a stress test given to banks every year. For a normal business, they are valued as their ability to receive money now, and return your money with interest in the future. However, with banks, it is very important for them to return cash to investors now rather than in the future. This is an important measure of health.
Recently, the central bank did an investigation on 30 of the worlds largest banks, and the results usually show if they can return dividends or not. They found that some banks were not able to pass this test, and showed losses in their business without sufficient reasons. For example Citi could not prove why they had been losing money in their foreign operations. If there had been a national crisis tomorrow, Citi would not be in a position to handle it.
In my opinion, this information should be more available to the public before one puts their money in a bank. We sometimes get the idea that banks are not able to be cracked, and that proved wrong in 2008. People should have closer to perfect information about banks in general. This will give the market the ability to self regulate.
Since the economy in the entire world is unstable and people are not confident about spending or any other economic activity that involves opportunity costs (or interest rates & stability of bank in savings) the guarantee of gaining profit or getting back the money is a good news and although revealing the entire information is realistically not likely to happen since it could be exploited for business.
ReplyDeleteTo add on to what you are saying Tyler, I think that it is and has become increasingly important for things like this to become available as public information. I feel as though some banks are taking advantage of the customers that they are supposed to be helping by keeping information from them that could potentially change that customer's mind in terms of being a consumer.
ReplyDelete