Treasury Stress Test Gives Bank a Dose of Their Own Medicine
Feb 14th, 2009 | By Rob | Category: Government
The U.S. Government has decided that regulators will apply an additional test to banks to determine which financial institutions will get additional capital from the government, and the form of that capital injection. If the bank doesn’t meet the test created by the U.S. Treasury Department and Treasury Secretary Tim Geithner, then the bank may be forced to merge with another bank or get taken over by the government. The stress test, as it has been commonly known, has financial institutions and investors, to say it mildly, stressed.
Their fate now rests with an individual in the government applying a test the details of which they aren’t privy to, and upon which the fate of their business hangs in the balance. It should sound familiar.
For years, banks and other financial institutions have been applying similar tests to consumers. It is often boiled down into a credit score. If you’ve got a good credit score, banks lend to you. If you have a bad credit score, they deny you credit. If you don’t have a great credit score, they can charge you more because your credit history makes you a risky investment.
If your financial health deteriorates, then they feel free to change the terms of their loan to compensate them for the additional risk to their investment. If your credit score drops, they jack up your interest rate and/or your minimum payment. And if you are late on a payment, you get a penalty increase on your credit rate. It doesn’t matter that it may drive you to bankruptcy.
It seems only fitting that the institutions that have imposed these complex mathematical computations to determine the financial health of a person or entity, now has one imposed on their next bailout. Because I’ve pulled their credit score, and the report is not good. While I’m as skeptical of government program and initiatives as I am of our credit card companies protecting our interests, in this instance, the banks are getting a dose of their own medicine.
Indeed, it may be time to increase the interest rate on the first wave of bailout loans. As well educated business people, the banks should be well aware that a fixed rate loan means that you can increase the interest rate at any time, and for any reason. An eye for an eye, right?
