FORTUNE -- Goldman Sachs and JPMorgan Chase pose no threat to the economy. How do we know? Beats me.
Late Monday, the Federal Reserve said that the two giant banks had officially passed their annual stress tests. The actual tests, which are supposed to assess whether the nation's biggest banks could survive another financial crisis, were conducted late last year. The results were initially released in March. Nearly all of the 18 big banks that were tested passed.
But for the first time this year, the Fed not only tested whether the banks had enough capital, but if their methods to determine how much capital they needed was good enough. Seems "high enough" was apparently not an acceptable answer. Goldman (GS) and JPMorgan (JPM) passed the first part of the test, but bombed the second part.
The weird thing, though, is that the Fed has never said what the issues were. I tried to find out at the time the test results initially came out. The best answer I could get for Goldman was that it was secretive on how it measured what assets it considered risky and what assets it deemed safe. The risky assets figure is a key input that the Fed uses to figure out how much capital you need to have.
For JPMorgan, the answer seemed to be London Whale, duh. And that actually seems like a pretty good answer because not knowing you are at risk of losing $6 billion might lead you to misjudge how much capital you need.
Still, who knows? All the Fed said on Monday was that the two banks had been asked to resubmit their plans due to "weakness identified in their capital planning process." They did. And they now have passed.
And yet, it's not clear our banks are any less risky. Take Goldman. Last quarter, the firm reported a $1.3 billion loss related to currencies, although that loss was offset elsewhere. Overall, the firm had a profit. Still, such a large loss in one line of business during this summer's relatively small market hiccup could suggest why the government had an issue with the way Goldman was determining how risky its assets were. Again, if the Fed did, which I don't know.
Initially, the point of the stress tests were to reassure the public that our banks were healthy. The Fed would release a whole bunch of numbers proving banks were safe, and that would build confidence. And it worked at the height of the financial crisis.
It worked so well that Congress decided it would be good to do it every year. But what was once a big public display of numbers has morphed into something else. Now banks fail for reasons we don't know, and then pass for resolving those unknown issues in ways we don't know. Feel safer now?
Clarification: An earlier version of this story said that Goldman had a $1 billion trading loss in the third quarter. In fact, Goldman lost money in one area of trading. Overall, it made money. Also, an earlier version of this story said that Goldman failed its stress test. Actually, the Fed gave Goldman a temporary pass, and required the firm to resubmit its results before the end of the year.
Banks are increasing their home equity lines of credit business, but such loans made during the housing heyday could still haunt them.Nin-Hai Tseng, Writer - Nov 27, 2013 11:19 AM ET
Where are the bankers involved with JPMorgan's dubious mortgage deals? At JPMorgan, Goldman Sachs, and other Wall Street firms.Stephen Gandel, senior editor - Nov 27, 2013 5:00 AM ET
Stephen Cutler says bank regulations and fines are getting out of control.
Clarification: 11/22, 5:40 PM
FORTUNE -- Apparently, JPMorgan Chase's top lawyer has some hurt feelings over his bank's recent $13 billion fine.
Stephen Cutler, speaking Friday morning at an industry conference, fired back at the government and said that the regulation of banks is spiraling out of control. He said regulators are wasting taxpayers' resources by piling on infractions and issuing MOREStephen Gandel, senior editor - Nov 22, 2013 2:39 PM ET
Recent settlements with SAC and JPMorgan are shielding the firms from lawsuits.
FORTUNE -- Justice continues to come with slightly less pain for Wall Streeters.
The most recent evidence of this phenomenon comes from the government's prosecution of hedge-fund billionaire Steven Cohen. Earlier this month, Cohen's firm SAC Capital pled guilty to insider trading charges. U.S. prosecutors have called SAC a criminal enterprise, and the firm is paying the largest fine related MOREStephen Gandel, senior editor - Nov 20, 2013 5:00 AM ET
A longtime critic of corporate tax loopholes concedes that JPMorgan and Twitter are not tax dodgers.
FORTUNE -- The odd couple of JPMorgan Chase and Twitter made news Thursday when the bank canceled a planned session on Twitter featuring vice chairman Jimmy Lee, because it attracted a ton of hostile tweets, such as, "When [JPM CEO] Jamie Dimon eats babies are they served rare?"
The bank and the social media company are MOREAllan Sloan, senior editor-at-large - Nov 15, 2013 5:00 AM ET
Bank fines are little more than a mechanism for transferring wealth from the bank's workers and customers to public coffers, and they fail to address the problem of how to rein in Wall Street excess.
By Sanjay Sanghoee
FORTUNE -- Here is an odd thing. Despite the massive legal problems JPMorgan Chase (JPM) is facing, including a potential $13 billion payout looming in its future, and blistering criticism by the press MORENov 14, 2013 11:07 AM ET
In a new filing, the bank reiterated that it's not worried about future legal expenses.
FORTUNE -- Morgan Stanley is either the cleanest bank on Wall Street, or it's living in denial.
Talk of JPMorgan Chase's $13 billion settlement has dramatically upped the expectations of what banks may pay to put the financial crisis behind them. On Thursday, in a regulatory filing, Goldman Sachs (GS) estimated it may spend $4 billion more MOREStephen Gandel, senior editor - Nov 8, 2013 5:00 AM ET
The Wells Fargo wagon is pulling into profit town. It won't stay for long, though.Stephen Gandel, senior editor - Nov 1, 2013 12:43 PM ET
Some are saying it was extortion. Others are saying it was unfair. But Jamie Dimon, the head of the U.S.'s largest bank, knows what he is doing.
FORTUNE -- A lot of people are questioning whether JPMorgan Chase's reported fine of $13 billion to settle claims that it misled investors in mortgage bonds is excessive. It would, after all, be the largest settlement any single bank has ever paid to regulators.
But MOREStephen Gandel, senior editor - Oct 21, 2013 3:40 PM ET
|Military retirees: You betrayed us, Congress|
|Instagram launches direct messaging|
|I work 4 jobs and I'm still struggling|
|Ford set for most aggressive expansion in 50 years|
|Stocks sink as disappointing December continues|