Saturday, July 24, 2010

Stress tests: for banks or customers? By: Anthony F. D’Silva

One of the positive aspects of the global financial crises is that our vocabulary has been enriched by some esoteric financial and banking terms that were hitherto Greek to most of us, such as subprime crisis (a puzzling term to me even today), foreclosures (stranger still), sovereign debt (money owed by a king?) and bailout (something you do when your friend is in trouble with the police or the moneylender).

Now, the newest term that foxes me is stress tests. Or, to be more precise, stress tests for banks. The European Central Bank has started conducting stress tests for banks, and other parts of the world are likely to follow suit.

They have apparently caught hold of the wrong end of the stick, because in all fairness it is customers who need stress tests, not banks. Besides, what is the point in conducting stress tests on banks after the horse has bolted and the damage had been done?

On the other hands, stress tests for bank customers are long overdue. After all, customers go through greater stress than banks. I bet my last dirham on the theory that more people die of stress induced by bank actions than in road accidents.

Foreclosures and defaults may do some minor damage to a bank’s bottom line, but the poor customer is knocked off his bottom each time he receives his statement. Yes, we know that banks want to clean up their balance sheet post recession, but the hapless customer struggles to restore his balance each time the bank sends him an SMS.

My stress levels have hit record highs over the past few years. It first began when I was trapped into taking my first credit card. The smooth-talking sales guy conned me with enticements, most of which did not materialise or were not utilised me, including a free ticket, discounts at fancy restaurants, insurance on loss of employment, movie tickets, theme park passes and sundry other allurements. When he wanted to sell me the card he breezed in like the emergency patrol but disappeared like a stealth bomber after the deed was done.

Ever since that fateful day, the credit card has turned out to be a hydra-headed monster, with the figures multiplying mysteriously. All my Himalayan efforts to get rid of this Damocles’ sword have ended in failure. The outstanding balance, conniving with finance charges, late fees and sundry other ‘hidden charges’, must has surely swelled the annual bonus package of some fortunate bank CEO, but it has wrought havoc with my health status.

The bi-monthly visits to the doctor have added hundreds of new words to my medical vocabulary. Each month he gleefully pencils some new tests to be carried out, including triglyceride, creatinine, uric acid, HBA1C, HDL, LDL and RBS, apart from the treadmill test. I see signs of insomnia, sleep apnea, absent mindedness and loss of memory, all of which, of course, cannot be attributed directly to my bankers, but I am certain they can be named as instigators.

So, now tell me, who needs to undergo stress tests?

My second encounter with the banks’ insatiable appetite for human blood was three years ago when in a moment of madness, I took a personal loan. On my first call, the entire banking machinery swung into action, the sales guy turned up at my office in 45 minutes flat (this was during the pre-recession boom period). The girl at the counter promised the amount would be in my account in 24 hours. It was there in 12 hours!

Today, the EMI has become an Extended Monthly Irritation. The fluctuating floating rate sends me to the deep end; the occasional payment defaults rattle my medulla oblongata and the loan tenure seems to be extending into eternity.

It is time they pass legislation making stress tests mandatory for bank customers in order to gauge their capacity to absorb monthly shocks delivered by bank statements, maintain sanity in the face of credit card outstandings that defy ordinary mathematics and make sense of loan installments that beat common man’s powers of comprehension.

Anthony F. D’Silva is a Dubai-based writer and public relations consultant

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