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Big Banks Get Stress Test Results
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Big Banks Get Stress Test Results

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Big Banks Get Stress Test Results
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MICHELE NORRIS, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel. For the CEOs of the country's 19 largest banks, today was report card day. They got the final results from the government's stress tests. Some were told they need to raise more capital to be considered healthy. Others learned their banks are in good enough shape to withstand an even worse recession. While the bankers got word today, the rest of us will have to wait until Thursday - that's when Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke will make the details public.

NPR's John Ydstie has more on what to expect.

JOHN YDSTIE: The stress tests are an attempt by the government to measure how banks would fair if the economy got significantly worse; specifically, if home prices fell another 20 percent and the unemployment rate rose to 10.3 percent. The results have been eagerly awaited by investors and there's been no shortage of rumors and anonymously sourced reports about which banks will need to add reserves. Not surprisingly, Citigroup and Bank of America have been mentioned most often. Last week, Wells Fargo was also named in some reports.

The banks have orders not to talk about the stress tests. But Eugene Ludwig, who regulated banks as controller of the currency in the mid 1990s, says he believes at least 10 of the 19 banks will be told to raise capital, though most of them, he says, will likely just need a modest topping up.

Mr. EUGENE LUDWIG (CEO, Promontory Financial Group): A couple of them will need some serious capital. But the belief is that they can get it either in the marketplace or will get it from the government. So, I think it, by and large, should be comforting to the public.

YDSTIE: Ludwig did not want to mention any institutions by name, since a number of the 19 big banks are clients of his consulting firm, Promontory Financial Group.

Nowhere are the stress tests more anxiously awaited than on Capitol Hill, where lawmakers have made it clear they're not interested in giving more bailout money to the banks.

Today, at a hearing before the Joint Economic Committee, Fed Chairman Bernanke declined to provide a preview of Thursday's report, but he did answer this question from New York Democrat Carolyn Maloney about whether Congress would be asked to pony up more funds.

Representative CAROLYN MALONEY (Chairwoman, Joint Economic Committee; Democrat, New York): Do you estimate that we might need more than what's remaining in the TARP program, the $110 billion?

Mr. BEN BERNANKE (Chairman, Federal Reserve): Well, I would leave that to the administration. I think they just recently indicated that they don't think there's a near-term need.

YDSTIE: A number of analysts have interpreted the administration's comment as an indication that the stress tests will show the nation's banks are basically healthy.

For his part, Douglas Elliott, a former investment banker who's now a fellow at the Brookings Institution, believes the government will conclude that altogether, the 19 big banks will need to raise between $100 billion and $200 billion in capital.

Mr. DOUGLAS ELLIOTT (Fellow, Brookings Institution): If it's lower than that, it will be a real sign that the regulators think the situation's better than we do. On the other hand, if it's more than that, we're in trouble, because the political constraints on going higher are strong.

YDSTIE: At present, it appears investors believe the results of the stress test will be quite positive. For much of the past couple of weeks, they've driven shares in the big banks higher. That's happened even though adding capital could dilute the value of those shares, at least temporarily.

John Ydstie, NPR News, Washington.

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