Daily Graphic: After The Stress Tests, Confidence in Banks Up Slightly
Stress Tests May Have Been a Game With Banks Helping to Set the Rules
from the Wall Street Journal:
The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation’s biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.
In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.
from Reuters:
At least half of the banks pushed back against the preliminary findings of the tests, the Wall Street Journal said, citing people with direct knowledge of the process.
Citigroup’s capital shortfall was reduced to $5.5 billion from about $35 billion after bank executives persuaded the Fed to include future capital-boosting impacts of pending transactions, the story said.
Wells Fargo’s shortfall was cut to $13.7 billion from $17.3 billion and Fifth Third’s was reduced to $1.1 billion from $2.6 billion.
Video: Ken Lewis on Stress Tests
Full Text: Geithner Statement on Stress Test Results
(Source: U.S. Dept. of the Treasury)
This afternoon, the Federal Reserve and the national banking agencies released the results of the stress tests – the most comprehensive, forward looking review of our nation’s largest banks ever undertaken. These tests will help ensure that banks have a sufficient capital cushion to continue lending in a more adverse economic scenario. They will provide the transparency necessary for individuals and markets to judge the strength of the banking system.
Full Text: Bernanke Statement on Stress Test Results
(Source: Board of Governors of the Federal Reserve)
This afternoon marks the culmination of the Supervisory Capital Assessment Program. Three independent federal banking supervisory agencies–the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation–have worked closely and collaboratively since late February to simultaneously assess the financial conditions of the 19 largest bank holding companies in the United States. These institutions play a vital role in our economy, holding among them two-thirds of the assets and more than one-half of the loans in the U.S. banking system. More than 150 examiners, economists, accountants, and other specialists conducted a rigorous and comprehensive review of these firms, one unprecedented in scale and scope.
Document: U.S. Big Banks Stress Test Results
(Source: Board of Governors of the Federal Reserve)
Click for Stress Test Results, May 7, 2009
Bank Stress Tests – Six of 19 Will Need Further Capital
While some of the lenders may need extra cash injections from the government, most of the capital is likely to come from converting preferred shares to common equity, the people said. The Federal Reserve is now hearing appeals from banks, including Citigroup Inc. and Bank of America Corp., that regulators have determined need more of a cushion against losses, they added.
By pushing conversions, rather than federal assistance, the government would allow banks to shore themselves up without the political taint that has soured both Wall Street and Congress on the bailouts. The risk is that, along with diluting existing shareholders, the government action won’t seem strong enough.
Treasury Backtracking on Transparency – Debate On Release of Stress Test Data
According to Reuters, not only is the U.S. Treasury Dept. holding off on release of bank stress tests due to earnings season, the government department may not release institution-specific data at all. One of the many factors leading to the current financial crisis was a lack of transparency in financial markets. If these institutions are publicly traded, and if they’ve taken tax dollar funded bailouts, the data needs to be available to anyone who wishes to see it.
From Reuters:
The U.S. Treasury Department is planning to delay the release of any completed bank stress test results until after the first-quarter earnings season to avoid complicating stock market reaction, a source familiar with Treasury’s discussions said on Tuesday.
The Treasury is still talking about how results of the regulatory stress tests on the 19 largest U.S. banks will be released, and may disclose them as summary results that are not institution-specific, the source said.
The government is testing how the largest banks would fare under more adverse economic conditions than are expected in an attempt to assess the firms’ capital needs. The tests are due to be completed by the end of April, but Treasury has said they may be finished before then.
The source, speaking anonymously because the Treasury has not made a final decision on what to disclose, said officials do not want any test results released before the earnings season wraps up for most U.S. banks on April 24.
