The good news is that 15 of 19 banks passed the Federal Reserve's stress tests; the bad news is why they passed, according to Fox Business.
The big banks that passed have been reaching their profit numbers by using accounting gimmicks and moves to paper over losses, according to the article. Without these moves, and with European debt and real estate still smashing their balance sheets, banks like Bank of America and Citigroup will have a difficult time attempting to raise their dividends or do stock repurchases.
The accounting gimmicks include relying heavily on tax losses to lower tax bills to the IRS and enhancing reported profits, along with many others. Approximately two-thirds of Citigroup's $21.9 billion in total net income for the past two years, came from accounting moves, according to the article.
To do the stress test, the Federal Reserve used a U.S. unemployment rate as high as 13 percent and a 20 percent decline in home prices, and an 8 percent drop in U.S. GDP — which the country saw in the 2008 downturn, and in 1931-1932, bank analyst Richard Bove told Fox Business.
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