Friday, May 01, 2009

This Politicization...

...of the stress tests "results" and the associated co-option of the entire process by the member banks themselves is bad comedy.  

WASHINGTON (AP) -- The Federal Reserve will release "stress tests" results for the biggest U.S. banks on Thursday, according to a government official.

Deliberations between banks and regulators about the tests' results pushed back the release date, which initially was expected to be earlier in the week.

In addition to an overall snapshot of the health of the 19 large banks being assessed, the Fed will provide detail about individual banks, according to the official, who spoke on condition of anonymity because of the sensitive nature of the matter.

The Fed will describe the resources banks would need to absorb losses on certain types of loans and investments under adverse economic conditions.

Last week, Fed officials said that all 19 banks that underwent stress tests will need to keep an extra buffer of capital reserves beyond what's now required, in case losses continue to mount. That would mean some banks will likely have to raise additional cash.

If they do, banks will have up to six months to raise the money from private companies, Federal Reserve Chairman Ben Bernanke has said. If they can't, then the government would provide assistance.

One option for help: allow the government to sharply increase its stakes in banks. That would be done by converting the government's stock in banks from preferred to common shares. It wouldn't require any additional taxpayer money, although it would increase their risks.

Another option: having the government make a fresh capital infusion in a bank using taxpayer money from the $700 billion financial bailout pot.

The tests were conducted to help regulators decide whether the banks have sufficient capital -- and the right mix of it -- to withstand any additional shocks to the economy over the next two years.

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