US OFFICIALS will brief the 19 largest American banks next Tuesday about the plan to disclose publicly the results of the government’s stress tests, a source familiar with administration thinking said yesterday.
The source, speaking anonymously because the briefings will be private, said Federal Reserve and Treasury Department officials will tell the banks on May 5th how they plan to issue the results on May 7th.
A government source said earlier that the government will provide stress test results on both an aggregate and individual holding company level.
The news, which has fixated investors around the world worried about the health of the US banking system, will be released late on Thursday afternoon, the source said. Initially it had been expected that the stress tests would be published next Monday, May 4th. The Federal Reserve and other banking regulators are conducting a battery of tests to see how the capital cushions of the country’s biggest banks would weather an economic downturn that was more severe than anticipated.
The tests have been deemed necessary to resolve doubts about the health of the banking system since it suffered steep losses after the housing market collapse, which has inflicted the most severe US recession in a generation.
The 19 banks tested, which include Citigroup, JPMorgan Chase and Wells Fargo, hold two-thirds of the assets in the US banking system and more than half of the loans.
The results of the examination will include information at both the aggregate and specific bank holding company levels. It will disclose estimates of losses for certain categories of loans, and resources to absorb those losses under the more adverse economic scenario, the source said.
The government has said the examination is not a solvency test, but a “what if” exercise to help supervisors gauge what additional capital would be needed across a range of economic outcomes.
The Federal Reserve said last week that some banks deemed to have too thin a capital cushion will have six months to find private funds, while others may need to accept an immediate infusion of taxpayer money.
Examiners subjected the banks to scenarios in which the US economy shrinks by as much as 3.3 per cent this year and in which unemployment reaches as high as 10.3 per cent next year.
The baseline scenario for house prices built in a 14 per cent fall this year, and 4 per cent next year, but the Fed also considered the scenario of a 22 per cent fall this year and 7 per cent next year.
President Obama’s administration announced in February that it was conducting the tests, which were seen as a way of buying time in the face of falling values of bank stocks. Since then the stock market has risen by almost 20 per cent and credit spreads have narrowed, easing pressure on treasury secretary Tim Geithner.
Mr Geithner has $110 billion in troubled asset funding to shore up the balance sheets of institutions that are shown to have shortfalls when the results are published. – (Reuters)
