Randy's Corner Deli Library

01 May 2009

Bank ‘Stress Test’ Results Due Next Thursday

View from a booth, on a late Friday afternoon: is it any wonder they are releasing the "stress test" results on a Thursday afternoon? To have done a "newsdump" -- like the Bushies used to -- of bad (horrible) news on a Friday would have had some interesting and poor consequences for the Obama administration, so they left an entire day for the news industry -- paid and non -- to panic the public over the condition of the American banking system. My guess is that it will not be pretty. I can only imagine the panic that is going to be created by the release of this news, as it will reveal what you and I already know: the banks in this country, even after receiving billions upon billions of dollars, are in the dump. The only question is how the government is going to force them to start lending again so that small business -- in my view what will eventually bring the economy back to solvency again -- can begin to expand and hire new workers, who can then start the wheels of commerce turning again.  But don't expect any really ballsy moves from Obama on that score. It's not politic for him to use government like that, lest he give lie to those who called him a socialist, which is, in my humble estimation, exactly what this country needs  in order to get right again. Socialism or socialist policies don't have to be permanent -- Roosevelt  and Truman are just two examples I can think of right now who acted far more socialistic than Obama has thus far, but who backed off once matters were set right.  
We'll see what happens. But I think the general health of the economy is going to get worse before it gets better. There is far, far too much up in the air at this point to make any solid prediction of imminent improved economic health. The things we hear about are nothing in comparison with the things we don't.    Cheer up - we could be living in Bolivia. Wait....we are living in Bolivia? Have a nice weekend.
Shabbat shalom.
Randy Shiner   

May 2, 2009

WASHINGTON — Federal bank regulators plan to release the much-anticipated results of their “stress tests” on the nation’s 19 biggest banks next Thursday, several days later than they had originally expected, in part because some of the banks continue to disagree with the government’s initial conclusions.

Senior officials at the Federal Reserve’s regional banks, especially the New York Fed, are expected to be in discussions with bank executives throughout this weekend and into next week, according to government officials and bank executives.

The goal of the tests is to determine how much additional capital each big bank will need if the economic downturn proves to be worse than expected. Many analysts expect that several major institutions, including Citigroup and Bank of America, will be ordered to come up with billions of dollars in additional capital.

Banks that do get such marching orders will be required to submit a capital-raising plan within one month and will have six months to actually raise the money. In practice, the banks will be under pressure to line up the new capital immediately, and several are expected to announce specific plans on the same day that the results are released.

The Treasury is expected to supply the weaker banks with much if not all the capital they need in exchange for voting shares of common stock, a move that could make the government a major shareholder in some institutions. The Treasury could provide the capital through cash infusions from what is left in its $700 billion financial rescue program, the Troubled Asset Relief Program. But Treasury and Fed officials are also expected to simply swap out the government’s existing preferred shares, which offer dividends but have no voting power, into shares of common stock.

Treasury and Fed officials said they would publicly release both aggregate results for the entire group of banks and specific results for individual institutions. The public disclosures will include information on the estimated losses that each bank would suffer if the recession proves worse than expected and how much capital the bank will have left to absorb those losses. The regulators will also disclose how big a capital buffer they expect all the banks to have for at least the foreseeable future.

The public disclosures are expected to be much more detailed and revealing than bank regulators normally provide. Indeed, Treasury officials were highly reluctant to release any of the results themselves, fearing that the information could set off panicky reactions among investors and add to the banks’ existing woes.

But a growing number of lawmakers and financial analysts have demanded that officials make the results public, given that the taxpayer money will probably be used to fill whatever shortfalls the tests reveal.

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