Citigroup needed something positive. It reported increased revenue and profit during its Q1 earnings Monday, which is fortunate, given that “the global banking group could use some good news to counter the disappointment after it recently failed the Fed’s stress test,” Forbes noted last week.
The six-month survey sampled 185 senior managers and C-suite risk management professionals from major capital markets firms in North America, EMEA and APAC on the latest challenges facing the global capital markets industry.
One big takeaway is something we’ve known all along: The market likes confidence. Another big takeaway is that the market practitioners surveyed want these tests to boost their confidence.
Stress testing will do so by identifying the weak links in the banking industry’s chain.
“These scenarios … mirror the situation witnessed during the global economic crisis of 2008, so aren’t completely implausible,” Boston-based market watcher Trefis noted last month. “So even if you’re not an investor in bank stocks, these tests can tell you which banks are best-positioned to withstand a potential economic downturn.”
It will take a while for the Fed to work out the bugs, as it would with any new, complex system that follows an international crisis. Feedback from annual tests — or twice the feedback from semi-annual tests — will help authorities in the U.S. and around the globe hone their examinations, perpetuating the toughest traits and weeding out the irrelevant.
In my bovine-themed post from earlier this year, I asked whom new regulations and their subsequent tests should try to please. It must be everyone trying to invest with confidence, from the tech-savvy firm to the day trader to the middle-class home buyer.
We can all be thankful for the recovering economy that Citi’s CEO credited with helping the New York-based holding improve its Q1 performance. But we must prepare for the worst in the meantime.
And finding the right way to prepare will require some evolution.