LYNN NEARY, host:
These days many Americans may feel they've been facing one stress test after another. Bankers can relate. In recent weeks federal regulators have been conducting so-called stress tests at 19 of the nation's largest financial institutions. The exams were designed to figure out just how well or not our most important banks are holding up under the strain of bad loans.
The Feds already have revealed the test results to the banks. This week regulators are expected to tell the rest of us what they've found. Here to explain is NPR's senior business editor, Marilyn Geewax. Good to have you with us, Marilyn.
MARILYN GEEWAX: Thank you.
NEARY: So what does this mean exactly, a stress test for banks? How does that work?
GEEWAX: Well, when you have a routine examination of a company's books, the accountants add up the revenues, and they subtract the expenses and they figure out if there's a profit or a loss. But a stress test is really something different. It's a simulation experiment. They're trying to figure out what might happen under various plausible scenarios. They're not looking for, you know, if an asteroid hits the earth, but what would happen if a few more loans were to go bad.
NEARY: Why should the average person care about that?
GEEWAX: Well, the U.S. economy is in terrible shape. We've seen just this past week we learned that during the winter the economy shrank by more than six percent. So, one of the main reasons that we've had a bad economy is just this lack of confidence in the financial system. Lending is down from banks. Savers is worried about safe are their investments. And the government is hoping that these stress tests will reveal that really we should have more confidence in our financial system and that things aren't so bad.
NEARY: Well, if the regulators do find that a bank has too little capital, what can be done?
GEEWAX: Well, those banks that have too little capital would have about six months to raise some private capital themselves, and if they couldn't they'd have to avail themselves more federal help. And companies don't really want federal help if they could avoid it. So they would like to raise that money themselves. They'd like to ideally prove that they don't need any help and then, second, raise any additional capital in the private markets.
NEARY: Any idea how these tests have turned out? Have there been any leaks yet?
GEEWAX: It's a world full of gossips, Lynn, you know, you may know that. And we've had some leaks or some suggestions that Citibank and Bank of America are among those that will need more capital. And, you know, there are concerns about others as well. But what we're expecting is that there won't be any nightmare scenarios revealed to us in the coming week. That we'll realize that there are some stresses that we're going to need more billions, but not that it's any catastrophe coming.
NEARY: and that means that the rest of us don't have to stress out about the banks anymore?
GEEWAX: There's debates. If you look on some of the blogs and see what analysts and economists are saying to each other, there are questions about whether or not the banks have been truthful with regulators. Not that those little scamps have ever lied to us before. But, you know, there is some concern that they haven't been truthful about their accounting. And there's also a concern that the federal regulators are so eager to have the tests come out well and not scare us, that maybe they are being a little too easy in their stress test. So I think we're just going to have to take this one step at a time and see how things play out in reality, not just a test.
NEARY: NPR business editor Marilyn Geewax. Thanks for being with us, Marilyn.
GEEWAX: Well, you're welcome.
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