Bank Stress Test

  

A bank stress test shows how well a bank will do if times get tough. It's a financial EKG of sorts. A whole bunch of fictitious scenarios are created, and your bank is put through the ringer. Banks that hold assets of $50 billion and up must submit to stress tests run by the Federal Reserve on an annual basis. The stress itself would come from a run on the bank where some form of panic makes its holders run to the bank asking to withdraw all their deposited cash. It's this panic that almost killed the banking system in the 20's and set off the Great Depression, when everyone lost trust in pretty much everything. The Fed stimulates the economy by loosening stress tests for banks, and fights inflation by tightening those stresses.

They're kind of the Richard Simmons meets Equinox of financial health.

Related or Semi-related Video

Finance: What is a merchant bank?4 Views

00:00

What is a merchant bank? Well there's the theoretical manner

00:08

in which the merchant bank came to the party and that was largely by providing [merchant bank partying in a disco club]

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payment options escrow currency hedges and other means of spraying wd-40 on the [merchant bank holding escrow papers]

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international tracts when American corporations did business with merchants [WD40 sprayed on train tracks]

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from other countries well the basic idea then was that a merchant bank lived and [foreign merchants shaking hands]

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breathed the banking international transaction universe and knew every [banks play pong across world map]

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trick in the book when dealing with shady countries who had hoped that they

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could get some gullible American corporation to ship them twenty five

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thousand yellow and orange rubber duckies with the squeaky sound thingies [rubber duckies getting squeezed in the tub]

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yeah and then somehow abscond without paying well the duck seller was schooled

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in molding rubber they were not schooled in international financial transactions

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so back then it made perfect sense for the duck maker to hire the merchant bank [merchant bank enters screen with duck maker]

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to deal with international escrow complexities far beyond their core skill

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and the way they hired them is basically the merchant bank would discount the

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bill that was owed to them and pay that money in cash in American u.s. dollars [money changing hands]

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to that American corporation and the bank would then be responsible for [bank choking international seller]

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collecting the full price and that spread between the full bill and what

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they paid the American company was how they made money well in the process of

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being deep in both the strategic operations of companies in the US and in

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understanding how the global marketplace for Commerce work merchant banks evolved

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into more or less one flavor or another of an investment bank helping clients [merchant bank bulding turns into investment bank]

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sell debt and equity and other money raising devices so that they could

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continue selling ducks or rakes or tractors or lawn flamingo's yeah those [rubber duckies floating by]

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are cute in the modern incarnation of merchant banks while many are actually [merchant bank throws bags of money to businessman]

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able to not just advise but invest in the companies to whom they are close all

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kinds of other complexities live in the border-to-border transactions and [merchant bank sends money to Mexico]

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because the personal relationships of the merchant bankers themselves ended up

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getting so close to the management into the government's they do [group of government officials]

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with into the competitive marketplaces well each of which carried enormous

02:17

friction and merchant banks and the bankers who run them have found

02:21

themselves in the middle of all kinds of commercial transactions yeah very

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lucrative business today people if you want to whine about taxes go into this

02:28

one so today merchant banking is really more

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like just banking with fewer regulations and a whole lot more upside when they're

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right and of course the most successful merchant banks are the ones that you

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know offer merch [merchant bank wearing merch clothes]

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