Reckless: The Inside Story of How the Banks Beat Washington (Again)

By Jesse Eisinger/ProPublica

One year ago, the largest financial institutions on Wall Street were desperate to show off their strength by paying out, or raising, dividends for the first time since the Great Recession. After conducting a secretive test of the banks' health, the Federal Reserve granted most of their requests in March 2011 -- over loud objections from economic luminaries in Washington and across the country. Now, for the first time, we tell the story of why the Federal Reserve caved, and how Wall Street still owns the place.

Reuters
In early November 2010, as the Federal Reserve began to weigh whether the nation's biggest financial firms were healthy enough to return money to their shareholders, a top regulator bluntly warned: Don't let them.

"We remain concerned over their ability to withstand stress in an uncertain economic environment," wrote Sheila Bair, the head of the Federal Deposit Insurance Corp., in a previously unreported letter obtained by ProPublica.

The letter came as the Fed was launching a "stress test" to decide whether the biggest U.S. financial firms could pay out dividends and buy back their shares instead of putting aside that money as capital. It was one of the central bank's most critical oversight decisions in the wake of the financial crisis.