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New Bank Stress Tests; Is Financial Crisis Worse Than Thought?

On Tuesday after the bell investors were trying to get a handle on the state of the financial crisis after the Fed told the market it intends to require new bank stress tests for as many as 31 US financial institutions.

Last time around only 19 firms were stress tested.

The Fed also said Bank of America, Citigroup , Goldman Sachs , JPMorgan, Morgan Stanley , and Wells Fargo -- the six biggest firms -- will have to show how they'd fare after a hypothetical global market shock.

”It raises a lot more questions than it answers,” comments Karen Finerman.

Here are just a few of her concerns:

- What happens if they are wanting for capital?
- Will they have to raise capital or will the government step in?
- How will the Fed manage the risk weighting of sovereign debt?

And of course the crowning question -- does it mean the financial crisis is even worse than we thought?

Finerman just doesn't see a lot of good for investors coming from developments. "It could make everyone want to liquidate what could perceived as a risky asset – and it could all happen at once. That’s not good."

Trader Steve Grasso agrees. He says the near-term reaction will be sell first – and then ask questions.

But before you run out and short the sector, there's another side to the argument.

Fred Cannon of KBW says new bank stress tests - especially these more rigorous tests - could bring credibility back to bank stocks.

It could generate confidence that US banks have enough capital to weather even the worst crisis. In turn that would make a stock like Bank of America, which is trading at a huge discount to book, suddenly seem like an attractive value.

Joe Terranova also sees it as a positive. “It will also let us know who can return money to shareholders with dividends.” If you're looking to trade his thesis, Terranova thinks Goldman Sachs stands out as a beneficiary of developments.

Steve Grasso, however, just can’t be convinced.

“True, it will make some banks feel safe. But it calls others into question. And the uncertainty will trump all else.




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Trader disclosure: On Nov 22, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour is long AAPL; Seymour is long BAC; Grasso owns AA; Grasso owns AKS; Grasso owns AMR; Grasso owns ASTM; Grasso owns BA; Grasso owns BAC; Grasso owns D; Grasso owns LIT; Grasso owns MHY; Grasso owns PFE; Grasso owns PRST; Grasso owns S; Grasso owns XLU; Terranova is long VRTS; Terranova is long LQD; Terranova is long MUB; Terranova is long AXP; Terranova is long IBM; Terranova is long EMC; Terranova is long SU; Terranova is long HES; Terranova is long AAPL; Terranova is long CSCO; Terranova is long STLD; Terranova is long CNQ; Terranova is long CAT; Terranova is long LULU; Terranova is long SBUX; Finerman owns AAPL; Finerman owns BAC; Finerman owns GOOG; Finerman owns JPM; Finerman’s firm owns AAPL and short calls; Finerman’s firm owns JPM and leaps; Finerman’s firm owns IBM and short calls; Finerman’s firm owns WMT and short calls; Finerman’s firm owns BKS; Kinahan is long GE; Kinahan is long C; Kinahan is long AAPL

For Steve Grasso
Stuart Frankel & Co and its partners own CSCO
Stuart Frankel & Co and its partners own CUBA
Stuart Frankel & Co and its partners own GERN
Stuart Frankel & Co and its partners own GM
Stuart Frankel & Co and its partners own HPQ
Stuart Frankel & Co and its partners own HSPO
Stuart Frankel & Co and its partners own JPM
Stuart Frankel & Co and its partners own MET
Stuart Frankel & Co and its partners own MSFT
Stuart Frankel & Co and its partners own MU
Stuart Frankel & Co and its partners own NYX
Stuart Frankel & Co and its partners own PRST
Stuart Frankel & Co and its partners own RDC
Stuart Frankel & Co and its partners own UAL
Stuart Frankel & Co and its partners own WFT
Stuart Frankel & Co and its partners own XRX

For Alex Panagiotidis
Stern Agee is a market maker in VIX

For Peter Misek
Jefferies & Company, Inc makes a market in the securities or ADRs of Apple Inc.

Jefferies & Company, Inc makes a market in the securities or ADRs of Amazon.com, Inc.

Jefferies & Company, Inc makes a market in the securities or ADRs of Google, Inc.

For Ray Neidl
No disclosures

For Fred Cannon
KBW expects to receive or intends to seek compensation for investment banking services from Wells Fargo & Company in the next three months.

KBW currently makes a market and/or acts as a liquidity provider in Wells Fargo & Company securities.

KBW expects to receive or intends to seek compensation for investment banking services from Morgan Stanley in the next three months.

KBW currently makes a market and/or acts as a liquidity provider in Morgan Stanley securities.

KBW expects to receive or intends to seek compensation for investment banking services from Goldman Sachs Group, Inc. in the next three months.

KBW has received compensation for investment banking services from Goldman Sachs Group, Inc. in the past 12 months.

KBW currently makes a market and/or acts as a liquidity provider in Goldman Sachs Group, Inc. securities.

Goldman Sachs Group, Inc. currently is, or was during the 12-month period preceding the date of distribution of this report, a client of KBW.

KBW expects to receive or intends to seek compensation for investment banking services from Citigroup in the next three months.

KBW has received compensation for investment banking services from Citigroup in the past 12 months.

Citigroup currently is, or was during the 12-month period preceding the date of distribution of this report, a client of KBW.

KBW expects to receive or intends to seek compensation for investment banking services from Bank of America Corp. in the next three months.

KBW currently makes a market and/or acts as a liquidity provider in Bank of America Corp. securities.

KBW expects to receive or intends to seek compensation for investment banking services from JPMorgan Chase & Co in the next three months.

KBW currently makes a market and/or acts as a liquidity provider in JPMorgan Chase & Co securities.



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