Signs are emerging that some of Wall Street's bullish, post-Trump victory expectations are starting to fade © AFP

US bank stress tests used to be, well, stressful. In 2009, regulators failed 10 of the 19 largest banks and told Bank of America to raise $34bn in new equity.

In this year’s test, published on Thursday evening, nobody failed and nobody will have to raise a cent of capital. The attention is now on how much banks will return to shareholders in the form of dividends and share buybacks.

The first tests in 2009 were crucial in drawing a line after the financial crisis. Even though many institutions were found wanting, investors took confidence that the Federal Reserve was being strict. The arrival of annual tests in 2011 were also helpful. A regular report card helped instil confidence that banks could withstand various shocks, including the eurozone crises.

Yet after several years the tool is now losing its edge. Bank capital levels would allow them to absorb huge losses. This has made the system safer — at the expense of shareholder returns and bankers’ bonuses.

To keep banks on their toes, the mechanics of the tests have been shrouded in mystery. Banks have had to add even more capital to compensate. A change at the Fed and the arrival of the Trump administration means this will be relaxed. Capital hawks are aghast.

But as an excuse to prevent banks from returning more capital, the tests were wearing thin. The 2009 scenarios drew some criticism for not being tough enough; this year’s looked incredibly tough, including the unemployment rate doubling to 10 per cent before the end of next year and the stock market plunging by half this year. To act as a curb on payouts, tests will have to go further: do you have enough capital to guard against a swarm of money-eating aliens?

There is a debate over higher and simpler capital rules. But that argument should be made openly, not enforced by regulatory fiat.

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