Financial Sector

European banking authorities are set this week to reveal which of the European Union region's banks are in good shape and which aren't, in a bid to reassure investors worried that the continent's financial sector is a disaster waiting to happen. But experts are already raising concerns about the credibility of the banking "stress tests," wondering whether they have probed deeply enough or asked the right questions of an industry not known for being transparent. The long-awaited results of the tests are to be released here in London on Friday after Europe's financial markets close for the weekend, to avoid an instantaneous effect on already-volatile stock exchanges.

LONDON - Pressing ahead where others have balked, 11 European countries received the green light Tuesday to plan a financial transaction tax that could generate billions of dollars in revenue for cash-strapped governments. Led by Germany and France, the European Union's two heavyweights, the nations will now work out how to introduce a levy on the buying and selling of stocks and bonds and on the use of complex financial instruments known as derivatives. Advocates say such a tax is not only necessary to help discourage risky transactions like those that precipitated the 2008 global financial meltdown but also a fair way to make financial institutions pay to help clean up the leftover mess.

On the first business day after the financial regulatory overhaul took its final shape in Congress, industry analysts focused on the gains made by Wall Street in the last round of horse trading. "The compromises made in the 11th hour of negotiations provided some relief, and the bill was not as severe as many investors had feared," analysts at investment Keefe, Bruyette & Woods wrote in a note to clients Monday. The legislation, approved Friday by a House-Senate conference committee, could eventually reduce the earnings power of more than 25 of the largest banks by an average of 5%, analysts at Citigroup Inc. estimated Monday.

The stage was set Friday for America's rattled financial system to face a possibility that Washington has so far sought to avoid: that one of the nation's big investment houses would collapse without government aid to soften the blow. Attempting to draw a line less than a week after the massive federal bailout of mortgage titans Fannie Mae and Freddie Mac, Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke have told executives and potential purchasers of Lehman Bros.

Stocks took a tumble Wednesday on renewed concerns about the financial sector and a profit warning by FedEx. The Dow Jones industrial average finished down more than 130 points after dipping below the 12,000 mark for the first time since mid-March. All three major stock indexes finished down about 1% as oil prices rebounded from three consecutive daily declines.

Goldman Sachs Group Inc. and Morgan Stanley have long been the premier firms on Wall Street, but angst-ridden investors are turning on even them as the mood in the financial industry darkens. Shares of the two companies fell on enormous trading volume for a second consecutive day Tuesday as investors grew increasingly nervous about the fate of Wall Street's last two independent investment banks. The anxiety was crystallized when Morgan, which has been pounded the hardest, rushed out its quarterly earnings report a day early.

Wall Street enters the new week filled with trepidation about what lies ahead for the financial sector. Late Sunday, investors were still waiting to learn the fate of foundering Lehman Bros. Holdings, there were reports that Bank of America Corp. and Merrill Lynch & Co. might merge and insurer American International Group appeared on the verge of a huge restructuring. Meanwhile, U.S. and foreign banks were working on a plan to cushion the global banking system from Lehman's possible failure, a top investment banking official said on condition of anonymity because the discussions were ongoing.

The Federal Reserve took another big step late Sunday to reshape Wall Street and end the era of goliath investment banks, even as Congressional Democrats worked to put their imprint on the Treasury Department's unprecedented $700-billion plan to shore up the economy. The Fed gave the green light for the two remaining major investment banks -- Goldman Sachs Group Inc.

Financial industry failures are causing "massive" amounts of debt downgrades, Standard & Poor's said. As of Sept. 15, 39 financial companies representing almost $1.2 trillion of debt had had their ratings cut, compared with 14 companies that had ratings raised. For every $1 billion of financial-company debt subject to upgrades, $22.5 billion in debt is being affected by downgrades, the report said.

The Federal Reserve Bank of New York found in a study of American financial markets little evidence that the industry was becoming more dominated by a small number of securities companies. The "review of how U.S. financial market structure has changed over the last decade finds no pervasive pattern of high and increasing concentration," the New York Fed said in a statement Thursday. The paper was written by a group of New York Fed economists and researchers.