The second event was a statement made by the chief bank regulator in the United States, Daniel Tarullo that the annual stress tests that banks must take will be made tougher. Plus, the banks will be forced to generate more capital as a percent of assets.
Fed Governor Tarullo can make statements like this without justifying his remarks by explaining: a) Why the stress tests must be made stronger or b) Why the banks need more capital because he and his organization do not have to justify anything that they do to the American people. Mr. Tarullo and a small numbers of cronies control all aspects of American banking.
Of course, by forcing more capital and tougher rules on the banks leads to two events:
- Dividend payouts and stock buybacks must be reduced, and
- The return on equity in the business falls, preventing bank stocks from rising in line with other commercial investments that are not regulated
Bank boards and management made a massive error by not educating the public as to what has happened to this industry. This has allowed the government free rein to impose whatever rules and penalties it chooses. There are no checks and balances; there are no restraints on the use of unlimited power.