After we reach a certain age, we know we should visit the doctor regularly even if we feel fine. It's good to have an expert give us the once-over, checking our vital signs and looking for anomalies that may be early warning signs of something more serious. Before we head off for marathon training, kayaking trip or any new physical activity, we know we should probably get the doctor's blessing.
Since the financial crisis, big banks are no different. Worries like systemic risk and prudential rules have occupied regulators ever since the credit collapse threatened the entire economy. On Thursday, the banks, their customers and shareholders will get the results of the financial equivalent of a physical before clearing any new fiscal exercise.
While there is no treadmill involved, the Federal Reserve subjects banks to economic stress tests. It devises economic scenarios once thought nearly impossible to see how the banks' balance sheets could handle them ... or not. On Thursday, the central bank will decide which of the largest banks are healthy enough to share more money with shareholders or go on a
shopping spree. If a bank hopes to increase its dividend or buy back its stock, it first must pass the tests.
The Federal Reserve wants to make sure the banks are healthy enough to recover if the economy takes another big hit. The banks want a clean bill of health to attract shareholders and customers.
Tom Hudson, a financial journalist based in Miami. He is the former co-anchor and managing editor of "Nightly Business Report" on public television.