NPR logo Half Of Major Banks Reportedly Need More Capital


Half Of Major Banks Reportedly Need More Capital

NPR's John Ydstie Reports On The Stress Tests

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About 10 of the 19 major U.S. banks undergoing government stress tests are expected to need more capital, according to a published report.

The Wall Street Journal on Tuesday said about 10 of the banks undergoing the tests will be instructed to boost their capital base one way or another. The banks needing additional capital reportedly include Bank of America, Citigroup, Wells Fargo and several regional banks.

The tests were designed to determine just how well — or not — the most important U.S. banks are holding up under the strain of bad loans.

Federal Reserve Chairman Ben Bernanke, in prepared testimony Tuesday before the congressional Joint Economic Committee, didn't provide details about how banks fared on the stress tests.

He did say that after the results are released, banks will be required to develop "comprehensive capital plans for establishing the required buffers." They will have six months to execute those plans or get help from the government.

On Monday, the White House said it has no plans to ask Congress for more taxpayer money to bail out struggling banks.

The government on Thursday will release results of stress tests for the nation's 19 largest banks, providing guidance on which banks may need more government support to withstand a more severe recession. Those that can't raise additional capital may get it from a $700 billion financial rescue fund.

The Obama administration has proposed seeking additional bailout money in case it is needed. Congress has opposed that unpopular idea.

Those subjected to the stress tests included all bank holding companies with assets totaling $100 billion at the end of 2008. Taken together, those institutions hold two-thirds of the assets and more than half the loans in the country's banking system.

Teams of government representatives from the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. reviewed the banks' financial data.

Each firm was asked to provide financial data on its loans, securities and trades. Then the government essentially played a game of "what if." It tested how much the banks would lose — and whether they had enough of a financial cushion — if either of two different macroeconomic scenarios came to pass.

A number of analysts are skeptical about whether the tests will reveal the full extent of the banking industry's problems. They fear that banks are still using accounting dodges to keep from revealing just how many bad loans they have made. They worry, too, that federal officials are too eager to reassure Americans that the worst of the credit crisis is over. In April, Treasury Secretary Timothy Geithner told Congress that the "vast majority" of U.S. banks have more capital than needed.

From NPR staff and wire reports