After the last recession and the collapse of the housing market in the U.S., the Dodd-Frank financial reforms were put into place. Part of the legislation requires that, once a year, the big banks are put through a "stress test." But what kind of test is this, and is it really all that relevant? In this video, Motley Fool Analyst Morgan Housel breaks down how these stress tests work, and how they're designed to insure that banks meet the challenges of the last recession. In no way, however, do they insure that banks will be ready for the next recession, which may look entirely different.
Austin Smith owns shares of Wells Fargo & Company. Fool contributor Morgan Housel has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America, Citigroup Inc , JPMorgan Chase & Co., and Wells Fargo & Company. Motley Fool newsletter services recommend Goldman Sachs Group and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.