WASHINGTON AND LOS ANGELES — Today is judgment day for the country's biggest banks as the government releases results of "stress tests" to gauge their stability, but Wall Street celebrated a day early after concluding that there would be no bombshells about the financial industry.
As a group, the 19 banks are likely to be forced to add tens of billions of dollars to their front-line cushions of capital to guard against a deeper-than-expected recession. But that could be accomplished in a number of ways short of raising cash, and Treasury Secretary Timothy F. Geithner -- expressing confidence Wednesday that the banks would need little more in the way of federal bailout funds -- predicted the results would be "reassuring."
The stock market also expressed confidence Wednesday in a heartening outcome. Shares of banking companies shot up, leading the overall market higher. The Dow Jones industrial average climbed 101.63 points, or 1.2%.
"The tests have clearly been a market confidence builder," said Terry Moore, managing director of consulting firm Accenture's banking practice. "It helps us counter the sky-is-falling mentality we've seen."
Still, the results, to be released this afternoon, could trigger further dramatic changes in the U.S. banking system, including greater government control over the operation of some of the institutions that have received billions of dollars in taxpayer funds. The results also could increase pressures on some large regional banks to merge with others.
Instead of new government financing, the vast bulk of the big banks required to bolster their capital will do so by raising money from private sources, selling assets or simply exchanging one form of stock for another, Geithner said in an interview on "The Charlie Rose Show" on public television.
"I think the results will be, on balance, reassuring," the Treasury chief said. "None of those 19 banks are at risk for insolvency."
Although economists have expressed cautious optimism in recent weeks that the economy, if not yet recovering, isn't shrinking as much as it was, more than 150 bank examiners and other regulators spent about two months studying what would happen to the 19 biggest banking companies if the recession turns out worse than currently expected.
