It’s good news that banks are under less stress, but such good news travels slowly

It’s good news that banks are under less stress, but such good news travels slowly

Critics of the Obama administration’s “stress tests” for the nation’s major banks say the bar was set too low, giving an impression that some of the nation’s banks are in better shape than reality would dictate.

The nation’s 19 largest banks performed relatively well in the tests. Wall Street responded with some better numbers in the days after the stress test results were released.

And now a number of banks have begun issuing bonds in a scramble for capital that would allow them to buy their way out of the of the government TARP fund and begin functioning like, well, banks again rather than wards of the state.

Federal regulators set the target of $75 billion for new capitalization, a reasonable target in an economy as big as the United States.

But banks are not going to be reinventing themselves over night.

It takes time

It’s going to take time to raise capital and it’s going to take time for the nation to work its way out of the recession.

While the stress tests provide one of the road maps toward a stronger economy, the fed also provided a worst-case scenario that was more than a little scary. If the economy does not begin turning upward in October-November as most analysts believe and unemployment reaches 10.3 percent next year, along with further economic contraction of 3.3 percent and a further fall of 22 percent in home prices, the banks would lose about $600 billion.

That would do more than put stress on the banks, it would put unbelievable stress on every American.

While the administration felt obliged to acknowledge worst-case possibilities, clearly the president’s advisers believe there is a way of avoiding them.

But nothing is going to happen overnight. It will take more than a year for banks to raise capital and clear their books so that lending can return to normal, whatever that is. It will take time for the money being pumped into the economy to create jobs to replace those that have been lost by the millions. And it will take time for people to feel confident about the economy and react accordingly, by spending money in ways that promote growth.