Stress test results: most banks fine, Goldman struggles

It's not a problem though, says the bank.

Bank stress tests have come round again - and almost all banks are fine. 

Is this a surprise? What actually goes on in a stress test? Well basically, the FED pitches banks against hypothetical economic scenarios, seeing whether they'd stand up to them - which is really testing whether they have a sufficient cushion of capital in the case of "deep global recession". So stress tests are an attempt to safeguard against another 2008 scenario. But now, a few years on from the crisis, the tests are more being used as a gateway for bank payouts. Of the 18 tested, only one failed - (Ally), and for the 17 that passed the tests will pave the way for increased dividends and share buybacks.

Interesting weaknesses showed up in the case of Goldman Sachs - which finished third from last.

Here's the FT:

Goldman, normally renowned for its resilience, would suffer a $20bn loss in the depths of the hypothetical crisis and its ratio of core “tier one common equity” capital against risk-weighted assets would fall to 5.8 per cent, compared with a minimum requirement of 5 per cent, the Fed said.

..but the bank doesn't think this will be much of a problem:

Howard Chen, bank analyst at Credit Suisse told the FT: “Importantly, we do not believe this negatively impacts our capital return assumptions."

Aside from the test results themselves banks had another concern: whether other banks would jump the gun and announce plans for payouts to shareholders early, like JP Morgan did last year. Some called it a prisoner's dilemma scenario - if one bank goes, they all do. But the Fed asked banks not to make public their plans before next week's announcement.

Here's the chart - also available here, amongst other details.

 

Goldman Sachs building. Photograph: Getty Images.
Photo: Getty
Show Hide image

It's not WhatsApp that was at fault in the Westminster attacks. It's our prisons

Britain's criminal justice system neither deterred nor rehabilitated Khalid Masood, and may even have facilitated his radicalisation. 

The dust has settled, the evidence has been collected and the government has decided who is to blame for the attack on Westminster. That’s right, its WhatsApp and their end-to-end encryption of messages. Amber Rudd, the Home Secretary, wants tech companies to install a backdoor into messages like these that the government can then access.

There are a couple of problems here, not least that Adrian Russell aka Khalid Masood was known to the security services but considered to be low-risk. Even if the government had had the ability to gain entry to his WhatsApp, they wouldn’t have used it. Then there’s the fact that end-to-end encryption doesn’t just protect criminals and terrorists – it protects users from criminals and terrorists. Any backdoor will be vulnerable to attack, not only from our own government and foreign powers, but by non-state actors including fraudsters, and other terrorists.

(I’m parking, also, the question of whether these are powers that should be handed to any government in perpetuity, particularly one in a country like Britain’s, where near-unchecked power is handed to the executive as long as it has a parliamentary majority.)

But the biggest problem is that there is an obvious area where government policy failed in the case of Masood: Britain’s prisons system.

Masood acted alone though it’s not yet clear if he was merely inspired by international jihadism – that is, he read news reports, watched their videos on social media and came up with the plan himself – or he was “enabled” – that is, he sought out and received help on how to plan his attack from the self-styled Islamic State.

But what we know for certain is that he was, as is a recurring feature of the “radicalisation journey”, in possession of a string of minor convictions from 1982 to 2002 and that he served jail time. As the point of having prisons is surely to deter both would-be offenders and rehabilitate its current occupants so they don’t offend again, Masood’s act of terror is an open-and-shut case of failure in the prison system. Not only he did prison fail to prevent him committing further crimes, he went on to commit one very major crime.  That he appears to have been radicalised in prison only compounds the failure.

The sad thing is that not so very long ago a Secretary of State at the Ministry of Justice was thinking seriously about prison and re-offending. While there was room to critique some of Michael Gove’s solutions to that problem, they were all a hell of a lot better than “let’s ban WhatsApp”. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.