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Dimon’s Jerk Move Leads to Early Release of Fed’s Stress Tests

The Federal Reserve, which released the details of its Federal Open Market Committee meeting today (no changes to monetary policy), did not plan on also releasing the results of their stress tests today. But they did in a hurry just a few minutes ago.

The reason why is indicative of the incredible arrogance on the part of the banks. It turns out that Jamie Dimon upstaged the Fed, forcing them to release their summary early:

Basically, JPMorgan came out with its announcement of dividends and buybacks around 3:00 PM.

In that announcement they said they had passed the stress tests from the Fed, and that forced the Fed to move up their schedule.

We’re still trying to get the bottom of it, but basically Jamie Dimon just called the shots, and the Fed was forced to play catchup.

Now we know who wears the pants in this family.

As for the results, they were pre-ordained. The majority of the 19 banks surveyed would meet the capital adequacy test, according to the Fed, even in an extremely adverse scenario with unemployment shooting to 13%:

Reflecting the severity of the stress scenario–which includes a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices–losses at the 19 bank holding companies are estimated to total $534 billion during the nine quarters of the hypothetical stress scenario. The aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, falls from 10.1 percent in the third quarter of 2011 to 6.3 percent in the fourth quarter of 2013 in the hypothetical stress scenario. That number incorporates the firms’ proposals for planned capital actions such as dividends, share buybacks, and share issuance.

Doesn’t this mean that a bank like Ally Financial should be able to handle a $250 million fine? Doesn’t it mean that banks should have been able to handle a much more stringent series of penalties over foreclosure fraud, which would have contributed more to homeowner deleveraging and improved both the housing market and the economic outlook? I mean, these banks have all this capital now. They’re well-reserved for any outcome. They shouldn’t have an implicit protection afforded by a go-easy approach to their conduct, too.

Dimon, of course, couldn’t wait to brag to the world about passing stress tests the banks helped design, after years of getting nursed at the government teat. I wonder if the stress tests took into account the mass criminality in JPM’s debt collection division.

UPDATE: I should mention that Ally failed the stress test, along with Sun Trust, MetLife and Citi (!). But I think Ally can just say that they don’t have the ability to pay deposits and everyone will let them slide. That’s how it works now, right?

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David Dayen

David Dayen

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