WASHINGTON AND LOS ANGELES — The nation's biggest banks are regaining their health, but some need to replenish their coffers to withstand any new difficulties, the government said in an upbeat report Thursday.
The Federal Reserve's highly anticipated "stress tests" found that 10 of the 19 largest banks needed to bolster their capital by a combined $75 billion. Most of that must be raised by two banks with a large California presence -- Bank of America Corp. and Wells Fargo & Co. -- highlighting the role of the state's housing market meltdown in the recession.
For The Record
Los Angeles Times Saturday, May 09, 2009 Home Edition Main News Part A Page 4 National Desk 1 inches; 51 words Type of Material: Correction
Bank 'stress tests': In some editions Friday, a headline with an article in Section A about a Federal Reserve report on the nation's biggest banks said the government found that 10 of the 19 largest banks needed to raise a total of $75 million in capital. The figure is $75 billion.
Overall, however, federal officials and industry experts said the results of the stress tests were another sign that the economy was getting closer to the road to recovery.
"The results . . . should provide considerable comfort to investors and the public," Federal Reserve Chairman Ben S. Bernanke said in releasing the data with Treasury Secretary Timothy F. Geithner.
Economist Sung Won Sohn summarized the stress-test results as "a sigh of relief."
"The results are not as bad as feared," said Sohn, a professor at Cal State Channel Islands and a former Wells Fargo executive. "The economic conditions are improving and the economic trough is not too far away."
Bert Ely, a consultant to banks, was less optimistic, saying the economy had not reached bottom and big losses on commercial real estate loans were only beginning to burn holes on balance sheets.
"It's really going to be a question of what happens to credit quality," Ely said. "I'm not convinced that the stress tests have fully addressed the potential problems out there. If things take a bad turn, all the concerns could come back again."
The stress tests were designed to assess the health of the major U.S. banks and determine whether they could handle a deepening of the recession. The process included a stark assessment of the cost of the financial crisis: Under a worse-case scenario -- not a worst-case scenario, as critics wanted -- the total losses of the 19 banks from mid-2007 to the end of 2010 could reach nearly $950 billion.
The tests showed that the banks would need very little new federal bailout money but would still need to boost capital through stock offerings, asset sales or other means.
Bank of America needs to raise $33.9 billion, more than any other bank, followed by Wells Fargo with $13.7 billion and GMAC with $11.5 billion.
