Reporting from Washington — Federal officials today began privately telling executives from the nation's 19 largest banks the preliminary results of "stress tests" meant to determine if the institutions need more government bailout money.
The results will not be made public until May 4, and banks are not allowed to reveal them. But the Federal Reserve, which is overseeing the process, today released details of the data and assumptions used to conduct the tests. The 21-page white paper was issued ahead of the actual results to give the public time to understand the process and data, according to a senior Fed official who spoke on condition of anonymity because the process is ongoing.
More than 150 senior bank examiners, economists and other officials from three federal bank regulatory agencies spent the last two months scouring the books of the 19 banks with more than $100 billion in assets, including JP Morgan Chase, Citigroup, Bank of America and Wells Fargo. The banks combined hold two-thirds of the assets of the entire U.S. banking system and more than half of the loans.
Treasury Secretary Timothy F. Geithner and Fed officials have stressed that most banks are well-capitalized. But if the recession worsens significantly, Obama administration officials worry that some of the largest banks might not have enough money to handle the additional losses they would face.
The stress tests are designed to determine if the banks need to raise more money. If so, they would be given six months to raise it privately before the federal government would step in with additional bailout money to assure that they would not fail. So far, the 19 banks have received about $214 billion in bailout money from the $700-billion rescue fund, and the stress tests could determine if the Obama administration needs to ask Congress for more money for the fund.
Regulators from the Federal Reserve, Federal Deposit Insurance Corp., and the Office of Comptroller of the Currency analyzed each bank's reserves and possible losses under two scenarios, according to the details released today.
The first scenario was based on the consensus of various professional forecasters for economic conditions through the end of 2010. They include the nation's economic output dropping by 2% this year before rebounding to produce 2.1% growth in 2010, housing prices falling 14% this year and another 4% next year and the unemployment rate averaging 8.8% next year.
