Banks: Most big firms pass Fed’s stress test
More than three years after the government bailed out the financial sector, “most big banks are in good shape,” said Peter Eavis and J.B. Silver-Greenberg in The New York Times. That’s the conclusion of the Federal Reserve’s latest round of stress tests on 19 of the country’s major financial firms. But four large firms—Citigroup, Ally Financial, SunTrust, and MetLife insurance company—failed to show they could weather another severe recession. The Fed tested whether banks had enough capital to withstand 13 percent unemployment and sharp declines in housing prices and the stock market. Under those conditions, Citigroup, the country’s third largest bank, would suffer steep losses on loans, and its capital cushion would fall below a level the Fed considers safe.
Other big banks, like Bank of America, JPMorgan, and Wells Fargo, all passed the tests, said Craig Torres in Bloomberg.com. That suggests the Fed’s tougher approach to policing risk in the financial system might be working. Analysts say regulators have succeeded in “pushing banks to build fortress-like balance sheets” since the worst of the financial crisis. Any bank that can withstand these tough scenarios is “not just strong but also darn-near impregnable,” said analyst Karen Shaw Petrou.
Euro crisis: Greece completes debt swap
Greece finalized the biggest debt write-down in history this week, swapping most of its privately held government bonds for new ones worth less than half their value, said Nicholas Paphitis in the Associated Press. The move shaves nearly $140 billion off Greece’s debt load and clears the way for the country’s second major bailout. More than 95 percent of Greece’s private bondholders are expected to take part in the orderly default, despite steep losses on their bonds. Finance Minister Evangelos Venizelos said the aim now is “the return of Greece to growth.”
Publishing: A plot to raise e-book prices?
The federal government has warned Apple and five major U.S. book publishers that they could be sued for “allegedly colluding to raise the price of electronic books,” said Thomas Catan and Jeffrey A. Trachtenberg in The Wall Street Journal. Apple struck deals with major publishers, including Simon & Schuster and Penguin, that gave Apple a 30 percent cut of e-book sales and allowed publishers to set prices, but prevented other distributors from undercutting Apple’s price. Previously, Amazon sold many best-selling e-books for $9.99, a strategy publishers disliked. A settlement could lead to “cheaper e-books for consumers.”
Student loans: The next ‘debt bomb’
There are frightening signs that a new “student loan debt bubble” could put “increased financial pressure on families struggling with their children’s mounting debt,” said Eric Pianin in The Washington Post. Outstanding student loans now total $867 billion, and the average debt exceeds $25,000. More than 80 percent of bankruptcy lawyers say they have seen a “substantial increase” in the number of people seeking student loan relief, and parents who co-signed loans “face the prospect of losing their life savings, cars, or homes to collection agencies.”
Transportation: Subways, buses grow crowded
Mass transit just had one of its biggest years in decades, said Steve Hargreaves in CNNMoney.com. Ridership on the country’s subways, trains, and buses hit 10.4 billion trips last year, the second-highest ridership since 1957. Only in 2008, when gas prices topped $4 a gallon, did more people ride. The rebounding economy, high fuel costs, and new technologies like countdown clocks are behind the rise. “As people get jobs and go back to work, they get on mass transit more,” says Michael Melaniphy of the American Public Transportation Association.