The federal government has published its stress test for major banks. The stress test is to determine how vulnerable these large banks are to various economic worst case scenarios. The actual stress reports are being given privately to the individual banks.

Those banks who fail could be required to increase their capital reserves.

The stress scenarios involve worsening unemployment and continued declines in home values.

The goals of the stress test scenarios were to evaluate the extent of potential problems and to improve market confidence in the financial system.

The effect may have been just the opposite, to increase market instability.

With 27 bank closing through April 24, is the decision to focus on saving large banks the right choice? Saving the large banks, while allowing smaller, regional banks to close, serves to further centralize the financial market. It seems to me to create even more "too big too fail" liability for the federal government.

Is bigger always better?

Why is the decision to save the large banks? These banks hold 1/2 of all bank loans.

How much debate has occured on this too big to fail philosophy? How transparent has been the decision to go big?

Is it better to bet on fewer bigger banks, that were in a large way responsible for financial crash?

Is it better to bet on more smaller, regional banks? Possibly more in tuned with local needs?

Does it take a large bank to compete globally?

It the risk of "too big too fail" too great for our Treasury? 

Here is the justification of the program, taken from Friday's publication of the Federal Reserve announcement for the The Supervisory Capital Assessment Program: Design and Implementation.

"Given the heightened uncertainty around the future course of the U.S. economy and potential losses in the banking system, supervisors believe it prudent for large bank holding companies (BHCs) to hold additional capital to provide a buffer against higher losses than generally expected, and still remain sufficiently capitalized at over the next two years and able to lend to creditworthy borrowers should such losses materialize. The purpose of the Supervisory Capital Assessment Program (SCAP), which is being conducted by the supervisory agencies, is to assess the size of these capital needs."

We are in position of needing to stabilize the financial market. This means protecting large banks. Does mean encouraging further consolidation of banking by allowing small banks to fail?

Should our policy be to continue to encourage larger and larger banks?