Periodically central bankers cannot help themselves and they actually tell the truth.  The latest example is New Zealand’s Reserve Bank Governor Adrian Orr explaining why bank stress tests shouldn’t be relied on.

What he failed to mention though was once a bank passes a stress test there is a moral obligation to use taxpayer funds to bailout the investors in that bank.  After all, it can be assumed the investors relied on the stress test results when making their investment.

We emphasise in our public articles that stress testing results should not be read at face value.

Both the significant modelling uncertainties, and the fact that the banks know how/when the stress situation ends, limits the value of stress tests.