Bank Stress Tests Need to Be More Stressful

Later this week, the Federal Reserve will release results from its most recent round of stress tests, in which it subjected the country’s largest banks to a hypothetical economic slump and market meltdown. Most if not all of the participants will pass, suggesting that they’re amply capitalized and can safely pay out more of their income to shareholders.

Unfortunately, the banks aren’t as safe as they look. The results are misleading, and the more people believe them, the more likely another crisis becomes.