We all remember the circus that was the stress test on the US Banks early last year. And another demonstration of the old shell game just several weeks ago with the European stress tests.

Now the International Monetary Fund (IMF) has come forward with their own calculations and it is much worse than the ‘government sponsored’ non stress tests.

The U.S. financial system remains fragile and banks subjected to additional economic stress might need as much as $76 billion in capital, according to the results of International Monetary Fund stress tests.

The findings, released today as part of a broader IMF report on the U.S. financial system, suggested that while the nation’s banking system is stable, it remains vulnerable. Home prices, commercial real estate loans and economic growth have the potential to cause shocks that could expose banks to more losses.

Under one scenario, small and regional banks as well as subsidiaries of foreign banks would need $40.5 billion in additional capital to meet a benchmark capital ratio of 6 percent Tier 1 common equity from 2010 to 2014. Under the adverse scenario, those needs rise to $76.3 billion, according to the report. {…} (Bloomberg)

The risks to the banking system are yet again rising as we have seen many banks reducing their loan loss reserves, putting that money back onto the active balance sheet. This is a dangerous game banks are doing in raiding their loan loss reserves in order to make the recent earnings reports look better.

Not only are the banks playing with fire by reducing the loan loss reserves they are still playing the FASB-157 mark-to-who knows what accounting standard that the Financial Accounting Standards Board conveniently allowed the banks to do the the height of the financial storm, and are still allowing them to do it today.

Today we still have no real clue how to value the assets the banks are still holding as the methods for marking the assets is essentially whatever they want it to be. I believe that many of these same firms don’t know the true value of these assets either and is one reason why they continue to sit on much of it. For it they sell it then they must take the ‘actual’ mark on the books, which could be much worse than what they value it currently.

And in related news five more banks failed today.

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