Bank Stress Tests Are About to Get Serious
Officials have a powerful tool to dispel uncertainty in financial markets. They should prepare to use it.
Getting tested.
Photographer: Spencer Platt/Getty ImagesThe coronavirus crisis has thrust the world’s financial markets into extreme uncertainty. The wild swings in asset prices, along with the sudden and pervasive demand for cash, reflect people’s struggles to understand how bad things can get and how damaging the losses will ultimately be.
Back in 2009, amid a similarly frightening crisis, the U.S. discovered a novel way to restore clarity and confidence: government-run stress tests that showed how much the country’s largest financial institutions stood to lose, and ensured they would get the resources they needed. It’s a tool that the Trump administration and Congress should be preparing to apply again.