Lest it be forgotten, Barack Obama's first crisis as president on Jan. 20 was a fast-failing bank system. Now, four months later, his "stress test" of the nation's 19 largest banks serves as much as a test of an FDR-like ability to dispel fear about banks as it is to help bind up their wounds.
So how'd he do?
Mr. Obama opened a new accountability within these large institutions. For that, he wins more than a toaster. Along with Treasury Secretary Timothy Geithner and Fed chief Ben Bernanke, the president walked a narrow path between playing a heavy government hand and letting the banks continue to play their previous high-risk games.
The test was clever in helping restore some confidence in the banking system, especially these 19, which command two-thirds of American bank deposits.
Here's how the test worked: Government regulators went mucking about in the banks' books to see how they might stand up to a scenario in which the economy tanks next year. (Strictly hypothetical, mind you.)
One aside: The test was just the type of exercise that government should have been doing long ago to head off the kind of near-meltdown of the financial system that happened last year. It should become a regular ritual.
The test results?
Nine of the 19 banks passed by having enough capital to weather that hypothetical storm while the other 10 were given six months to come up with a combined $75 billion in new capital to buttress their books. (Two banks, Bank of America and Wells Fargo, must come up with more than half of that total amount.)
Not only does raising the $75 billion seem doable in what appears to be a rising economy, but even if a few banks falter, the government has enough money left in the Troubled Asset Relief Program (TARP) to make up any difference without going back to Congress for more.
It helped, of course, that the Obama administration stated during this testing that none of these banks would be allowed to fail. In effect, the president said he would spend much of his political capital with Congress to bail out the big banks, if need be, and put future taxpayers on the hook to solve today's banking woes. In March, those assurances helped boost the stock market.
Unlike a tendency in Japan or Europe to protect troubled banks from public shame, the stress test was a way to shine a spotlight of transparency on the problems of US banks in hopes of bringing about a cure. Homeowners who have ever had to ask their lenders for help on a troubled mortgage might relate to the process of throwing open their finances in order to find a compromise.
The stress test also revealed the exact nature of each bank's peculiar problems. Many are overexposed to certain burdened sectors, such as commercial real estate or credit-card loans. If any one of those sectors worsens in coming months, the more vulnerable banks may need to raise more capital than expected by the Treasury and Federal Reserve.
As a public relations exercise, the stress test can be compared to Franklin Roosevelt's closing of banks in 1933 – a "bank holiday" – and then reopening the "good" ones later. The public perceived a sifting out of the bad banks. Lending was again possible to some degree.
It may take a while for most of these 19 banks to perk up their lending as they raise the necessary capital. But at least they are no longer hiding behind a veil of secrecy about their assets.
The prying eyes of the Obama administration has made them come clean.
You pass, too, Mr. President.