Publish all details of stress-tests!

The news that the UK Treasury may ask the FSA to conduct a detailed stress-test on Lloyds-TSB before agreeing that the bank does not participate in the asset protection scheme and launches a share issue instead should serve as a reminder that the stress tests performed so far in the US and the UK have not really helped to improve confidence in the banking sector. Of course, the fact that the authorities claimed that the recent stress tests were satisfactory did help shares of banks to rebound but this was more due to the fact that markets simply realised that the governments would stand behind the institutions deemed to big to fail and not because investors really could see behind the official smoke-screen. If all numbers would be in the open investors could really draw their own conclusions and would probably have much more confidence in the viability of the banking sector rather than rely on the say-so of the regulators. The same argument can be made with respect to the rating process that would be to a large extent supplanted by due diligence conducted by the investing public.