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The Editors

If Only Banks Didn't Need Stress Tests

Steve Mnuchin lives in a parallel universe where banks have more than enough capital to ride out a crisis. The rest of us aren't so lucky.
How deep is the foundation?

How deep is the foundation?

Photographer: Daniel Acker/Bloomberg

If the Trump administration has its way, U.S. banks might no longer have to endure stress tests as tough as the ones drawing to a conclusion this week and next. And that would be great -- if only the banks were strong enough not to need them.

Stress tests started in 2009, when the U.S. used them to restore confidence during a financial crisis. Since then they've evolved into a more or less predictable regulatory exercise. Each year, the Federal Reserve conjures up a new worst-case scenario for the economy, and banks expend untold hours and resources to ensure they have just enough capital to squeak by. This time around, analysts expect U.S. banks to do very well, allowing them to return tens of billions of dollars to shareholders.