Bank Stress test results may cause panic scenario

NorthernSanctuary · 04-16-2009, 03:56 AM

The following is an interesting post from GLP that tries to connect some interesting dots for a possible scenario :

"
Market Watch- April 15, 2009 – Bank Stress tests to be revealed! Hypothetical scenario based on postings in yesterdays thread!
Quote

First, what I like about the GLP community is that there are contributors who often offer pieces of information that are often part of a larger puzzle. Yesterday’s thread ‘hank’ posted a link to site that had some very interesting statistical data regarding market trends. That site is here:
http://www.nowandfutures.com/buscycle.htm

The article is about a ten minute read and the data presented is compelling. Bottom line for the near term is that April 23 may very well be a key date in taking the downturn to the next level.

When I got up this morning and saw that the results of the bank stress tests would be revealed it got me thinking about a hypothetical scenario that could push us down with furious abandon.

First the stress tests!
U.S. planning to reveal data on health of top banks
http://www.reuters.com/article/GCA-C...53E0ZW20090415

The Obama administration is drawing up plans to disclose the financial condition of the 19 biggest banks in the country, the New York Times said, citing senior administration officials.

The administration has decided to reveal some sensitive details of the "stress tests" now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest, the paper said.

Disclosing Bank “Stress Test” Numbers: Good Way To Cause Panic
http://247wallst.com/2009/04/15/disc...o-cause-panic/

Looking at the balancing act between disclosure and the concern that banks that get poor grade for the “stress test” will face sell-offs in their stocks, the government has decided to lean toward telling the public the results of its work. Accoridng to The New York Times, “The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.” That is an odd position to take. The banks which are at the bottom of the list will almost certainly face panicked shareholders.

The government is damned if it does not release the data and it is damned if it does. Over the last year, the stocks of the largest banks have largely moved up and down in concert with one another. Once Wall St. percieves some of the firms as being significantly troubled, the sell-offs in their stocks will be rapid and damaging. Low share prices will mean more dilution when capital has to be raised. The US banking system will be broken into two pieces.

So here is my hypothetical scenario. The dates may be just a tad off but let your mind play around the general timeframe.

Monday April 20, 2009
The results of the bank stress test are released and there a several banks deemed significantly in trouble. That evening on the national news at 6:30 PM the results are discussed and those who are completely oblivious to current events become aware that their bank is in trouble.

Run on the banks that are deemed significantly troubled?
Tuesday April 21, 2009
The people who have bank accounts in banks that the talking heads said were in trouble the night before on their primetime network news broadcast begin the process of withdrawing funds. By noon word filters around the internet of bank runs on the troubled banks. That evening on the national news at 6:30 there are news segments showing lines at the troubled banks and ‘bank runs’ is mentioned in the news piece.

Wednesday April 22, 2009
The bank runs continue and deplete the reserves of the troubled banks and even banks that were not deemed in trouble by the stress test results due to misinformation. This is also the day that the Bank Reserve Settlement is posted. Failure to meet reserve requirements would mean the federal funds rate market would feel the brunt of it since the funds rate is what they charge each other. There is a backlash in markets due to all the volatility and the sell orders begin to flood in. Again the nightly news spreads more fear into the American psyche.

Thursday April 23, 2009
A bank holiday is declared and the market gets hammered taking us to fresh lows for this recession.

Before you think this too farfetched please read the article that ‘hank’ linked up that was written in 1999. The last critical date prior to the April 23, 2009 date was February 27, 2007. What happened on that day?

Brutal day on Wall Street
Dow tumbles 416, biggest one-day point loss since 2001, as investors eye China, drop in durable orders.
http://money.cnn.com/2007/02/27/mark...0630/index.htm

Again, I want to state that I am just piecing this together thanks to the collective efforts of ‘hank’, Avian , Ice and various AC’s. They laid the groundwork in yesterday’s thread.
http://www.godlikeproductions.com/fo...sage770325/pg2
"

04-16-2009, 03:56 AM	#1
NorthernSanctuary Avalon Senior Member Join Date: Sep 2008 Location: Montreal, Canada Posts: 698	Bank Stress test results may cause panic scenario The following is an interesting post from GLP that tries to connect some interesting dots for a possible scenario : " Market Watch- April 15, 2009 – Bank Stress tests to be revealed! Hypothetical scenario based on postings in yesterdays thread! Quote First, what I like about the GLP community is that there are contributors who often offer pieces of information that are often part of a larger puzzle. Yesterday’s thread ‘hank’ posted a link to site that had some very interesting statistical data regarding market trends. That site is here: http://www.nowandfutures.com/buscycle.htm The article is about a ten minute read and the data presented is compelling. Bottom line for the near term is that April 23 may very well be a key date in taking the downturn to the next level. When I got up this morning and saw that the results of the bank stress tests would be revealed it got me thinking about a hypothetical scenario that could push us down with furious abandon. First the stress tests! U.S. planning to reveal data on health of top banks http://www.reuters.com/article/GCA-C...53E0ZW20090415 The Obama administration is drawing up plans to disclose the financial condition of the 19 biggest banks in the country, the New York Times said, citing senior administration officials. The administration has decided to reveal some sensitive details of the "stress tests" now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest, the paper said. Disclosing Bank “Stress Test” Numbers: Good Way To Cause Panic http://247wallst.com/2009/04/15/disc...o-cause-panic/ Looking at the balancing act between disclosure and the concern that banks that get poor grade for the “stress test” will face sell-offs in their stocks, the government has decided to lean toward telling the public the results of its work. Accoridng to The New York Times, “The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.” That is an odd position to take. The banks which are at the bottom of the list will almost certainly face panicked shareholders. The government is damned if it does not release the data and it is damned if it does. Over the last year, the stocks of the largest banks have largely moved up and down in concert with one another. Once Wall St. percieves some of the firms as being significantly troubled, the sell-offs in their stocks will be rapid and damaging. Low share prices will mean more dilution when capital has to be raised. The US banking system will be broken into two pieces. So here is my hypothetical scenario. The dates may be just a tad off but let your mind play around the general timeframe. Monday April 20, 2009 The results of the bank stress test are released and there a several banks deemed significantly in trouble. That evening on the national news at 6:30 PM the results are discussed and those who are completely oblivious to current events become aware that their bank is in trouble. Run on the banks that are deemed significantly troubled? Tuesday April 21, 2009 The people who have bank accounts in banks that the talking heads said were in trouble the night before on their primetime network news broadcast begin the process of withdrawing funds. By noon word filters around the internet of bank runs on the troubled banks. That evening on the national news at 6:30 there are news segments showing lines at the troubled banks and ‘bank runs’ is mentioned in the news piece. Wednesday April 22, 2009 The bank runs continue and deplete the reserves of the troubled banks and even banks that were not deemed in trouble by the stress test results due to misinformation. This is also the day that the Bank Reserve Settlement is posted. Failure to meet reserve requirements would mean the federal funds rate market would feel the brunt of it since the funds rate is what they charge each other. There is a backlash in markets due to all the volatility and the sell orders begin to flood in. Again the nightly news spreads more fear into the American psyche. Thursday April 23, 2009 A bank holiday is declared and the market gets hammered taking us to fresh lows for this recession. Before you think this too farfetched please read the article that ‘hank’ linked up that was written in 1999. The last critical date prior to the April 23, 2009 date was February 27, 2007. What happened on that day? Brutal day on Wall Street Dow tumbles 416, biggest one-day point loss since 2001, as investors eye China, drop in durable orders. http://money.cnn.com/2007/02/27/mark...0630/index.htm Again, I want to state that I am just piecing this together thanks to the collective efforts of ‘hank’, Avian , Ice and various AC’s. They laid the groundwork in yesterday’s thread. http://www.godlikeproductions.com/fo...sage770325/pg2 "