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Letting Banks Shed Capital Won’t Build Confidence: View

The Federal Reserve has a number of powerful tools it can use to restore confidence in the U.S. banking system. Allowing banks to weaken their financial positions shouldn’t be one of them.

On Tuesday, the Fed released the results of the toughest bank stress tests it has yet performed. Designed to ensure that the largest U.S. banks can survive a severe recession and renewed housing crisis, the tests included a 52 percent drop in the stock market, a 21 percent decline in house prices and a 5 percent contraction in economic activity -- similar to what actually happened from 2007 to 2009.