WASHINGTON — Federal officials on Friday began laying the groundwork for next month's release of eagerly awaited test results on the nation's largest banks, publicly explaining the process used to determine if the institutions need more bailout money.
The move came as bank executives on Friday privately learned how they did on the so-called stress tests, designed to determine if the 19 largest institutions could weather a worse-than-expected deepening of the recession.
Banks are not allowed to reveal the results, and the Federal Reserve cautioned Friday that the need for additional capital by a bank "is not a measure of the current solvency or viability of the firm."
Although the government has not yet identified which banks might need to raise capital, most economists and banking experts believe there will be some. Frederick Cannon, an analyst with Keefe, Bruyette & Woods, has done his own stress tests using criteria similar to the government's, and he expects several of the 19 will require infusions, including a number of regional banks.
The Obama administration will publicly release the results the week of May 4, though officials are trying to determine how much data to disclose.
But given the emphasis the administration has placed on the tests as the key to future steps to repair the financial system, officials fear that the information might be misinterpreted -- and weaken some of the country's most important banks. So the Federal Reserve, which is overseeing the tests, released a 21-page white paper explaining the data and assumptions used in the testing to give the public time to understand it, according to a senior Fed official who spoke on condition of anonymity because the process is ongoing.
Treasury Secretary Timothy F. Geithner and Fed officials have stressed that most banks are well capitalized. But if the recession worsens significantly, administration officials worry that some of the largest banks might not have enough money to handle the additional losses they would face.
"One of Treasury's goals is to prevent investors and depositors from drawing incorrect conclusions" about the results, said Scott Talbott, the chief lobbyist for the Financial Services Roundtable, which represents large financial institutions. "Transparency about the methodology, as well as the assumptions, will avoid that."
