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Banks Cramming For Stress Test


This week will likely be remembered as a critical week for stocks, especially bank stocks. Nearly twenty of the nation’s largest banks will undergo a stress test.

"As of this date ... all these large banks exceed regulatory standards for being well-capitalized, so for right now they're fine," said FDIC chief Sheila Bair in an interview.

But the issue isn’t really how the banks are doing now; it’s how much more they can withstand if economic conditions get even worse.

"I think the big issue is how much of an additional buffer they have to withstand under more adverse economic situations. And that's something we're going to try to figure out with a stress test," Bair said.

Banks Cramming for the Stress Test

The details of the test are hazy but as soon as the results are available they're expected to be made public. In fact, Bair suggests that banks could rush out with their findings --  to show a skeptical public that they are in fact doing okay.

That’s great for banks that pass – but what about those that fail? Or is this one of those tests that you can’t fail?

Jason Trennert, Strategas Research Partners chief investment strategist tells Fast Money “if every bank passes the stress test it’s no test.” If that happens, “we’ll either lose confidence in the big banks or the Treasury.”

So, what does happen if a bank doesn’t pass?

"If the test shows that banks need more capital and are unable to raise it privately, then the government might have to act," Baird said however she cautioned against rushing to the conclusion that Washington plans to take over the industry, saying, “I think there’s ambiguity in the word ’nationalization.’ “

What’s the trade?

Trennert tells us in general he’s quite bearish on the economy but quite bullish on gold and energy mainly because “governments around the world will put people to work but not create growth.”

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Trader disclosure: On Feb. 24th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (MSFT), (PALM); Najarian Owns (GE) Put Spread; Najarian Owns (FCX) & (FCX) Calls; Najarian Owns (GDX) & (GDX) Short Calls; Najarian Owns (HPQ) Calls; Najarian Owns (JPM) & (JPM) Calls; Najarian Owns (MS) & (MS) Short Calls; Najarian Owns (MOS) Call Spread; Najarian Owns (X) Put Spread; Seymour Owns (AAPL), (EEM), (MON), (BAC), (FXI), (VIP), (MS), (SSL) Seymour's Firm Owns (FCX), (COP); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Macke Owns (MS), (TM), (DIS); Terranova Owns (DIS), (FXC), (XBI), (KCE); Terranova Owns (AMGN) & (AMGN) Puts; Terranova Owns (IBM) Call Spread; Terraova Owns Nymex MACI Oil Futures