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Did the Fed Tamper With Stress Test Grades for Two TARP Banks?

Did the Fed Tamper With Stress Test Grades for Two TARP Banks?Although the Fed proudly announced last week that a “majority of the biggest U.S. banks met ‘supervisory expectations for capital adequacy,’” some analysts believe the final grades for two banks were inflated.

Regions Financial and Zions Bancorp. received better grades in last week’s stress tests than they deserved, according to a recent CNN Money report by Stephen Gandel.

Why would the Fed mess with the grades?

“One possible reason: Regions and Zions have yet to repay the bailout money they got from the government’s Troubled Asset Relief Program [TARP] – money the government seems increasingly eager to get back,” Gandel writes.

Well, wait a minute. How much TARP money do these two banks owe?

According to Gandel, the two banks owe about $4.9 billion. That’s more than the other 361 banks still in the program (or about a third of the TARP funds still owed by banks).

“Analysts thought a likely outcome of the stress test was that Regions and Zions would be told by the Fed that they had failed and would have to raise more capital,” Gandel writes.

“Instead, Regions and Zions passed the test, receiving better grades than many of their larger rivals, and were given the green light to repay government funds, which both banks now say they will do by the end of the year,” he adds.

Of course, the Fed claims all banks were evaluated equally. In fact, according to the results of the stress test, Zions would have no problem retaining enough capital should any of the scenarios outlined by the Feds come to pass.

But there seems to be something wrong with this claim. Gandel explains:

…for Zions that result appears to be based on the fact that the Fed approved a loan loss estimate that was roughly half of the rate that was applied to other banks. Zions was not subject to the same stress test as Citigroup, Bank of America and others. That‘s because it’s not one of the nation’s 19 largest banks. As part of the stress test, though, the Fed asked Zions and 10 other banks with more than $50 billion in assets to submit their estimates of how they would do under the Fed’s stressed economic scenario. The Fed tested those projections and then passed or failed the banks based on its calculations.

Nonetheless, it appears the Fed was more lenient with Zions than with other banks. Last month, Zions told analysts it projected that $1.7 billion, or 4.5 percent of its loans, would go unpaid under the Fed’s stress scenario. That’s significantly lower than average 8.1 percent loan loss estimate that the Fed used to determine whether the nation’s 19 largest banks had enough capital or not. Go with Zion’s estimate, which it appears the Fed did, and the bank comes out of the stress test with 60 percent more capital than is required. A pass. But if the Fed had applied the same loan loss ratio to Zions that it did on average to the other banks, Zions’ stress test would have shown that the bank has 30 percent less capital than it needs, meaning it would have failed.

And it appears Regions was given a break as well.

“The overall loan loss projection for Regions, which is one of the nation’s 19 largest banks, was in line with the average for other banks,” according to CNN Money. “But much of the bank’s loan portfolio is concentrated in the Southeast, which has been hit hard by the housing bust, and where analysts expect loan loses to be higher than average,” the report adds.

Which is to say, if Regions were forced to sell all of its loans today, it would suffer an $8 billion dollar loss. But seeing as how Regions “only has $7.6 billion in capital to cover those losses,” or $400 million less than it needs, this means the bank flunks the stress test automatically.

All of this supports the idea that the Fed may have toyed with the final grades because it’s eager to have that $4.9 billion in TARP money repaid.

“The administration seems to want to have as much of the bank bailout fund repaid by November,” says analyst Hagerman. “I think that played into how the Fed looked at the TARP banks.”

Comments (30)

  • TangLaoYa
    Posted on March 24, 2012 at 9:52pm

    The biger issue (if you can believe there is a bigger issue than FED fraud) is this: Why does anyone need permission to pay off their debts? Why do we need so many regulations that a bank must pass a stress test to make a simple business decision?

    Regulation invites corruption.

    Report Post » TangLaoYa  
  • tmplarnite
    Posted on March 23, 2012 at 9:38pm

    This is is the NEW version of Howdy Doody Show and this is Howdy Doody himself..doesn’t he look like Howdy – without the freckles? Problem is this bozo is stealing us blind…”$16 Trillion” dollars is missing and is stolen by these banking crooks!

    Report Post »  
  • youdidthis
    Posted on March 22, 2012 at 7:23pm

    does a bear sheet in the woods…of course the numbers were jacked.

    Report Post »  
  • CulperGang
    Posted on March 22, 2012 at 4:06pm

    The Majority of the HILL is going along with the Federal Reserve Private Bankers dog and pony show, not realizing, obviously that the jig is up. They obviously feel their isn’t a blowback to them and the UNIFORMS WITH PROTECT THEIR BACKS.

    Just a reminder to you in uniforms: No. Korea KimJongIl DESTROYED the people via the UNIFORMS. The masses are starving. Have been for years, while Kim and gang lived large on expensive liquour and white kooches from Russia. The army was always taken care of. But, you see the slave labor that fed them DIED of starvation. NOW THE ARMY IS DYING OF STARVATION. If the South attacked now……they could blow the solldiers over with a feather. THAT is what YOU uniforms will get from tyrants. Pol. Pot/Stalin/Hitler GOT RID of useful idiots in uniform like dishrags.
    Remember that as you crack the heads of patriots and dissenters against obama and the corporations. STOP BEING USEFUL IDIOTS. STAND ON THE CONSTITUTION. Stop obeying orders from tyrants who are “writing tyrannical legislations like NDAA. Spit on John McCain.

    Report Post » CulperGang  
  • Delicaterose65
    Posted on March 22, 2012 at 3:58pm

    He did NOT “play with the numbers nor banks” just like “Its not weiner in those picts and texts”!! If you believe that then I got the best farm land in zimbabway you can buy…LMAO!!

    Report Post » Delicaterose65  
  • THE_END_IS_NEAR
    Posted on March 22, 2012 at 3:48pm

    FEDERAL RESERVE = PRIVATE CORPORATION

    Don’t you people get it? What if McDonalds printed McBucks? Wouldn’t feel so good about our currency would you…

    Report Post » THE_END_IS_NEAR  
  • hungry4food4u
    Posted on March 22, 2012 at 3:30pm

    The Conspiracy to Crash the Dollar and allow China to take over as worlds Trade currency !!!
    Theres a motive behind the Gold trade that really needs to be better understood , HERE IS the Plan by China to Collapse the US Dollar , and they are going to use Gold as the vehicle : http://www.stansberryresearch.com/pro/1202CHINAPT2/LOILN325/PR
    This article talks about the plan to use those Bond Funds that form capital in the Operation Twist that the Federal Reserve is engaged in now like it says in this report on page 4 , they are buying 4 trillion bucks worth of bonds it says, http://landing.rarecoinwholesalers.com/Content/pdf/CollapseOfgoldReport.pdf to then be Invested into the equities markets to inflate the Dow and make it look like there is growth this could crash the gold market , http://www.zerohedge.com/news/next-leg-ponzi-revealed-central-banks-begin-buying-us-stocks-outright-starting-today
    read this article that opens the door to the discussion about where the effort to collapse the dollar trade currency status was being discussed in the highest levels of US Government and top rating agencies ,
    BILDERBERG FINANCIERS AT TEL AVIV MONETARY MEETING
    http://disc.yourwebapps.com/discussion.cgi?disc=149495;article=124696;title=APFN
    http://seekingalpha.com/article/285737-the-rise-of-financial-terrorism
    The Scam against the USA was all found here ,
    http://webofdebt.wordpress.com/2011/08/18/sp-and-the-bilderbergers-all-part-of-the-plan/

    Report Post »  
    • hungry4food4u
      Posted on March 22, 2012 at 3:33pm

      The above link is By This same Advertisement New America 1 .com, and it has been advertising the dollar crash for some time now and is all about buying Gold to avert a Dollar crash and that Directly benefits Chinas attempts to become the worlds TRADE CURRENCY and takeover the Dollars position ??? http://pro.stansberryresearch.com/1202ENDOFAMR/6PSIN316/

      Bernanke says gold standard wouldn’t solve problems , http://www.reuters.com/article/2012/03/20/us-usa-fed-gold-idUSBRE82J17A20120320 , so as he employees Operation Twist to buy Long term Bonds This is using taxpayer debt to create a FAKE rally in the equities markets to suck the gold investors out of gold and back into the equities driving down Gold so the Chinese can buy it cheaper and further consolidate the worlds gold supply , just Like The Stanfield research advertisement talks about . This is really bad someone needs to be looking into this scam , its a direct assault on the US Dollar !!! Man do we even realize the DEBT we all are being crushed with by these Actions that are just crushing the dollar and giving China the means to over take the US dollar ?

      Report Post »  
    • youdidthis
      Posted on March 22, 2012 at 7:25pm

      thanks for passing along the knowledge…

      careful zombie brains explode

      Report Post »  
  • steely_eyes
    Posted on March 22, 2012 at 12:43pm

    Ben is running the world’s first and largest quanzi scheme in history. How long can 0% rates continue? How much more money can be printed without crippling hyper inflation? How much longer will creditors fund trillions of dollars of reckless spending that will VAPORIZE when the govt quanzi scheme bubble bursts?

    Ben’s grade-his-own-test results are no surprise. Just ask yourself, where is the test of rising interest rates? Historically, rates have averaged around 6%. Oh, what’s that? If we raised rates to even 3%, all banks would fail? Literally fail? Yes. And how about removing the “mark to fantasy” accounting shenanigans? Let‘s see the banks’ real books and gushing foreclosures they’re hiding…still.

    Report Post »  
  • Soquel by the Creek
    Posted on March 22, 2012 at 12:18pm

    The degree of financial mismanagement by our so-called “leaders” in Washington is appalling.

    First, there was the decades-long denial of prudent reforms for Fannie Mae and Freddie Mac. Then, late on Christmas Eve, 2009, the Obama Administration pledged “unlimited support” for both organizations. Of coure, just two months before the crash, the same federal government assured us that, “I don’t think that Fannie and Freddie are financially insolvent. I don’t think they need large bailouts.”

    “Fannie, Freddie, and You as the Secret Santa”
    http://soquelbythecreek.blogspot.com/2010/02/fannie-freddie-and-you-as-secret-santa.html

    Then, there are the financial shenanigans that make Enron and Bernie Madhoff look like petty criminals.

    “The Debt Ceiling and Where Do You Hide $238 BILLION?”
    http://soquelbythecreek.blogspot.com/2011/08/debt-ceiling-and-where-do-you-hide-238.html

    Then, there is the outright currency manipulation by the Federal Reserve.

    “United States Federal Reserve Buys Nearly $1 TRILLION in U.S. Treasury Securities Over One Year Period”
    http://soquelbythecreek.blogspot.com/2012/02/united-states-federal-reserve-buys.html

    Of course, our Senate has now gone for well over 1,000 days without a budget.

    The trust in our federal government is long gone.

    Report Post » Soquel by the Creek  
  • dnewton
    Posted on March 22, 2012 at 10:36am

    This is like social promotion in school. The bad effects are delayed. I suspect that the government would rather continue with the illusion that the banks were fine than to endure the possible continued discussion that it was government policy of generating shaky mortgages under threats from the government that caused the problem in the first place. Ironically, the most compliant banks would have been damaged the most so it is pure social justice that those who went along with the program and were damaged should receive some kind of reparations from the perpetrator. Locally, Regions has been shrinking. They have fewer people, locations and ATMs.

    Report Post »  
  • AxelPhantom
    Posted on March 22, 2012 at 10:34am

    This is just a thought, and would be interesting to look into.

    When we got our mortgage from one of the “failed” banks more than 10 years ago, we asked about them selling it to a second party such as Fannie Mae. They said they could not, it was in the contract that they must hold it for the life of the loan.

    Fannie Mae now holds somewhere around 90% of all new mortgages. What if some entities don’t want to play ball?

    Report Post »  
  • BlackCrow
    Posted on March 22, 2012 at 10:28am

    If you don’t get the results change the rules of the game. The government does it all the time. Won’t change the fact all the worlds currencies are backed by debt and thereby predestine to fail.

    Report Post » BlackCrow  
  • ColoradoMaverick
    Posted on March 22, 2012 at 10:22am

    Geez, someone in the Federal Government under the Obama administration is cooking the books?? That could not possibly happen under this transparent President could it??

    Report Post » ColoradoMaverick  
  • HorseCrazy
    Posted on March 22, 2012 at 10:16am

    what they meddle with figures, stats numbers and other important data? I am trying my best to feign surprise at Government corruption.

    Report Post »  
  • cuinsong
    Posted on March 22, 2012 at 10:04am

    BS, hog wash, double talk, out & out lies, distortions, fraud, grand theft, Larceny, deception & intentionally misleading the American people, misappropriation of public funds, money landing for the unions, receiving stolen property and a lot more that we should be arresting this bunch of criminals for!
    But nothing is being done about it on behalf of the citizens of this country, which in its self is a crime!
    Now I ask you
    “What’s Wrong With This Song” http://www.reverbnation.com/play_now/song_9134749

    Report Post » cuinsong  
  • barber2
    Posted on March 22, 2012 at 10:01am

    These guys start with the figures they need and then work BACKWARD to achieve them . It’s called the New Math just like we now have the New Democrat Party. Election time : It’s all about WINNING. It’s not about TRUTH.

    Report Post »  
  • Baddoggy
    Posted on March 22, 2012 at 9:29am

    I will be glad when Ron Paul personally burns down the FED…
    I will be happier when they hang all of them for treason.

    Report Post » Baddoggy  
    • Snowleopard {gallery of cat folks}
      Posted on March 22, 2012 at 10:01am

      Send them to North Korea, cheaper than wasting good rope. The matter is clear that any trial they are brought to must show to the world all the evil and corruption that can be found and proven to be linked to them…and I mean everything across the board.

      Report Post » Snowleopard {gallery of cat folks}  
    • PIGSWILLNEVERFLY
      Posted on March 22, 2012 at 11:13am

      Who ever is the new president should appoint Ron Paul to Treasury……Tax Cheat Timmy is one spooky lookin and actin fool, the grin on his ugly mug says it all. Tim and Benny know they’re on their way out….they still don’t care, it’s obvious. WHO THE HELL NEEDS ANOTHER COMMITTEE? It NEVER Fixes anything at all!!! They all totally suck. THROW THEM ALL OUT 2012

      Report Post » PIGSWILLNEVERFLY  
  • JP4JOY
    Posted on March 22, 2012 at 9:20am

    The MORE government money received the WORSE the performance of the entity receiving the funds.

    Go Figure!

    Report Post » JP4JOY  
  • Snowleopard {gallery of cat folks}
    Posted on March 22, 2012 at 9:13am

    Right now there is another question: how much economic coersion (i.e. bribe) did Obama demand to let the banks scores be changed? Follow the money trail to see the corruption from end to end.

    Report Post » Snowleopard {gallery of cat folks}  
    • HorseCrazy
      Posted on March 22, 2012 at 11:44am

      I wish they would but they won’t. the corruption is so deep

      Report Post »  
  • Mikev5
    Posted on March 22, 2012 at 9:08am

    Can you belive anything comming out of this adminastration they lie about everything under the sun.

    Report Post » Mikev5  
  • Mark0331
    Posted on March 22, 2012 at 9:07am

    Of course the Fed did. Does Washington think we are stupid and will believe that our nation is getting better? We LIVE out here in the Real America with real people…we know our families and neighbors are struggling…’if you tell a lie long enough…’ that is this Administrations mantra…go shoot hoops Barry and take your boys with you.

    Report Post » Mark0331  
  • Gonzo
    Posted on March 22, 2012 at 9:06am

    Obama? Play with the numbers?…say it ain’t so.

    Report Post » Gonzo  
    • Mark0331
      Posted on March 22, 2012 at 9:12am

      Go and check out the Unemployment numbers…or rather lack of people able to get unemployment..300,000 + kicked off the rolls…they will state that is ‘an improving job market’…now that is an even greater dertrimental lie…

      Report Post » Mark0331  
    • Soquel by the Creek
      Posted on March 22, 2012 at 12:31pm

      The Obama Administration is not the first to “lie with statistics,” but they are quite adept at it. Remember the Obama jobs chart touted by the Democrats and Nancy Pelosi in support of the Stimulus spending?

      “What Does the Obama Job Chart Really Mean?”
      http://soquelbythecreek.blogspot.com/2010/02/what-does-obama-job-chart-really-mean.html

      Report Post » Soquel by the Creek  
  • brntout
    Posted on March 22, 2012 at 9:05am

    How’s that “too big to fail” doctrine boot on your neck going?

    Report Post »  

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