Stress testing banks will not address the credibility crisis facing capitalism

News that 10 US banks have failed the US Treasury’s ‘stress tests’ should not be surprising.

The capitalist baking model is flawed. Most intelligent commentators recognise that no bank is too big to fail. Banks create credit in multiples of actual Tier 1 capital such as cash and equity. By definition there will always be insufficient funds in banks if all depositors and borrowers came calling irrespective of the size of equity in a bank or how deep its pockets were. Indeed, attempting to rescue really big banks could potentially bring down national economies.

Why stress test banks then?

Capitalism faces not only a financial but a credibility crisis. The stress tests are aimed at persuading investors that these banks are viable businesses worth investing in in order to kick start flagging financial activity. The stress tests also suggest a kind of scientific approach to addressing the failure of banks as viable businesses. In actual fact the tests are half-baked attempts at concealing the systemic failure of the capitalist banking model.