Stress Tests Will Save Our Financial System, You Can Bank On It

Federal Reserve Chairman Ben Bernanke spent another fun day on Capitol Hill today, assuring lawmakers that the last thing anyone wants to do is have the government take giant stakes in the nation's financial institutions. And in order to avoid this doomsday scenario, the Treasury, the Fed and other regulators are launching a series of "stress tests" to check banks' capital strength under recession conditions…

"Supervisors will work with institutions to estimate the range of possible future losses and the resources to absorb such losses over a two-year period," banking regulators said in a joint statement. The adverse situation tests would assume a 2010 unemployment rate of 10.3%, Case-Shiller home price declines of 22% in 2009 and 7% in 2010 and gross domestic product contractions of 3.3% in 2009 and 0.5 in 2010.

Plus a consumer freakout rate of 73%, bewildering financial jargon increases of 39% in 2009 and 44% in 2010 and a 20-point rise in Tim Geithner's blood pressure. Given all that, the price of failure will be high…

Bernanke told the House panel that if the stress test reveals that a bank needs more capital, it will have up to six months to raise the money from private companies. If it can't,

It'll get shut down? Its branches will be converted into low-income housing? We'll burn it for heat?

then the government would provide assistance.

Well, but there's no way it'll come to that.

I mean, what private company wouldn't want to invest in a bank that can prove it's run out of capital?