“Stress test” results are due out to the public early next month to determine how much capital certain banks would need to withstand the recession. Banks under scrutiny with weak balance sheets include Citigroup Inc, Wells Fargo & Co (WFC), Bank of America (BAC), MetLife (MET) and GMAC, reports Karey Wutkowski and Patrick Rucker for Reuters.
The Federal Reserve, incidentally, tested regional banks harder than the industry titans, Daniel Wagner for the Associated Press reports. The tests rated individual loans held by large regional banks as riskier than the complex troubled assets held by large banks. This has some worried that it could threaten regional banks, while making the big ones appear to be better off than they are.
Wayne Abernathy, a former Treasury Department official, points out that regional banks’ portfolios are down about 5% so far, while complex securities have seen their values drop between 30% and 40%.
The Obama administration is hoping that the suspension of interest payments for large, distressed banks on Federal aid will help the establishments rebuild capital reserves faster and cut the need for more aid. Binyamin Applebaum for The Washington Post reports that the government initially required aid recipients to issue preferred stock that paid interest of 5% a year.