Epic Gordian knots of farce...

...I am at a loss of words for this.  The G let let the banks run the stress tests based on their own assumptions.  If the results were negative, the Banks would have to raise capital to meet the approval of their regulatory overseers.   Of course, the results were negative to the tune of 74 Billion dollars.  

Now, they gain a 6 month period to wait and see if earnings outstrip "forecaststs".

Why not demand they raise additional capital, weighted an error term for the accuracy of the earnings forecasts?

I don't really need more evidence of regulatory capture, but it just keeps coming.

US banks claim line softened on $74bn

By Francesco Guerrera and Saskia Scholtes in New York and Krishna Guha in Washington

Published: May 8 2009 16:18 | Last updated: May 9 2009 04:06

US banks have been given government assurances they will be allowed to raise less than the $74.6bn in equity mandated by stress tests if earnings over the next six months outstrip regulators’ forecasts, bankers said.

The agreement, which was not mentioned when the government revealed the results on Thursday, means some banks may not have to raise as much equity through share issues and asset sales as the market is expecting. It could also increase the incentive for banks to book profits in the next two quarters.

The banks have 28 days to announce their capital-raising plans and until November 9 to implement them. Wells Fargo and other banks that will have to raise capital told the Financial Times that if operating profits were greater than the government’s stress-case forecast for the second and third quarter, they would receive credit for the difference. That, in turn, would reduce the need to raise fresh equity from other sources.

A Federal Reserve official said the 10 banks that need a combined $74.6bn in equity would be expected not to assume that their earnings would be higher than in the stress test when presenting their capital-raising plans. However, the official declined to comment on whether banks could take credit for such earnings as they materialised and adjust their capital-raising plans accordingly by November.