Most of the banks undergoing the stress tests have assets that are worth less than 10% more than their liabilities. With such a thin margin, to believe one of these banks is adequately capitalized you would have to believe that most of their loans can, and will, be repaid in full. Given how much of their loans were used to make purchases of homes or companies at the peak of the market, with little money put in by the ‘buyers’, it is very hard to believe that these banks really are solvent without taxpayer money being pumped in, directly or indirectly (by boosting the ‘market’ value of their assets, or guaranteeing repayment of the loans).
In brief, these tests are not credible unless a decent % of banks fail. At 10% (about 2 banks out of 19), I’d say the credibility is pretty marginal. At 40%, I’d say credibility is 100%, but the lobbyists and Larry and Tim would be very unhappy. It sure sounds like Larry and Tim actually hope to get away with none, or maybe one if they are pushed really hard. If so, they will have no credibility except with the less informed members of the general public (and some anxious industry insiders).
