Nouriel Roubini, Tim Geithner, Fairy Godmother Getty Images
The Treasury isn't expected to release the results of its stress test on the nation's 19 largest banks until Thursday, but a basic outline has begun to emerge. Press reports have Bank of America and Citigroup out looking for more capital already. Today's Wall Street Journal says 10 of the 19 will soon be in the same boat.
Douglas Elliott of the Brookings Institute told me yesterday that the big question for him will be where the government's final assessment falls on the spectrum of forecasting. Is Treasury Secretary Tim Geithner leaning toward the pessimistic outlook of economist Nouriel Roubini, or is he moving more toward a gentler, rosier view? As Elliott writes in a new paper, he'll be watching for the final count of how much extra money the Treasury wants banks to raise:
The range I expect, of $100-200 billion, would be broadly in line with consensus expectations for the depth of the recession and the resulting credit losses. A smaller requirement would likely indicate the regulators and the Administration are more optimistic about the banking crisis. The $100-200 billion range is feasible within political constraints and therefore would not be avoided solely for political reasons. On the other hand, a larger figure might indicate that things are worse than the consensus believes. Imposing a larger total capital requirement would hit significant political barriers, particularly since it would probably force an eventual return to an unwilling Congress for more money. Doing this despite those political constraints would seem to indicate serious concerns.
The trickiest situation to analyze would be if the aggregate figure is in the expected range. This could either mean that this is the level regulators genuinely see as the right additional buffer or could reflect the political reality that Congress would be extremely reluctant to authorize more funds and would almost certainly add strings that the Administration would find onerous. It could be more appealing to operate within the present authorization and wait to see if that proves to be enough.
categories: Politics
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