Sunday, April 12, 2009

Federal Reserve tells banks to not reveal results of 'stress test'

Federal Reserve tells banks to not reveal results of 'stress test'

John Bryne

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19 of the nation's largest banks have been told by the U.S. Federal Reserve to keep quiet on the results of economic 'stress tests' that regulators are conducting to judge the banks' financial preparedness.

The Fed is trying to guarantee that the test's results (which determine if the government will assist banks with necessary capital) don’t leak during conference calls scheduled for later in April, when first quarter's earnings are usually announced. No such guarantee can be made, however, and if information on which banks didn't pass the test is leaked, stock prices could suffer accordingly. The Federal Reserve plans on releasing the results in a few weeks.

Paul Miller, an analyst with FBR Capital Markets, told Bloomberg reporters, "If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed."

Currently, the 19 largest U.S. banks have enough capital to be considered well capitalized. But in the event of a 'more adverse scenario,' as the Reserve's press release terms it, the government wants to ensure that the banks have enough capital to weather any long-term recession. For the past few months, federal bank supervisors have been conducting a capital assessment for each bank. The basis of the capital assessment is to "determine whether the institution has a sufficient capital buffer necessary to ensure each institution has the amount and quality of capital necessary to perform their vital role in the economy," according to the Reserve. The Capital Assistance Program will be the source of any needed capital for banks that don't pass their capital assessment.

A progress report on the Capital Assistance Program was received in the White House by President Obama yesterday. Geithner, Ben Bernanke, and Sheila Bair, Chairman of the FDIC, were all in attendance, along with the rest of Obama's economic team. The full Bloomberg article can be found here.

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