Photo taken on May 6, 2009 shows the
headquarters of Citigroup Inc. in the borough of Manhattan in New York,
the U.S.. U.S. regulators Thursday unveiled the long-waited results of the
government's stress tests, which show that 10 of the nation's 19 largest
banks need a total of 74.6 billion dollars. (Xinhua/Shen
Hong)
Photo
Gallery
by Xinhua writer Liu Hong
WASHINGTON, May 7 (Xinhua) -- U.S. regulators
Thursday unveiled the long-waited results of the government's stress tests and
urged 10 of the nation's 19 largest banks to raise about 75 billion dollars in
new capital to withstand future losses if the recession worsened.
Federal Reserve chairman Ben Bernanke said the
results "should provide considerable comfort to investors and the public,"
noting nearly all the banks have sufficient capital "to absorb the higher losses
envisioned under the hypothetical adverse scenario."
The assessment results are "just one important
element of the governments broader and ongoing efforts to strengthen the
financial system and the economy," said the U.S. central bank chief in a
statement.
"Roughly half the firms, though, need to enhance
their capital structure to put greater emphasis on common equity, which provides
institutions the best protection during periods of stress," he said.
MORE CAPITAL
NEEDED
Among the institutions needing more capital, Bank of
America needs to raise 33.9 billion dollars in capital with Wells Forgo needing
13.7 billion dollars and the auto and mortgage lender GMACLLC requiring 11.5
billion dollars, said the Federal Reserve, which led the tests.
Meanwhile, Citigroup requirement for deeper reserves
to withstand future losses is about 5.5 billion dollars and Morgan Stanley needs
1.8 billion dollars. Regions Financial Corp., Fifth Third Bancorp, KeyCorp, PNC
Financial Service Group Inc. and SunTrust Banks also were told to bolster their
reserves.
By contrast, Bank of New York Mellon Corp, American
Express Co., Capital One Financial Corp, Goldman Sachs Group Inc, JPMorgan Chase
Co., U.S. Bancorp, BBT Corp., State Street Corp. and MetLife Inc do
not need capital.
The revelation that Bank of America needs about 33.9
billion dollars to fill the hole will increase pressure on Ken Lewis, the
company's embattled chief executive.
The tests also found that total credit losses for the
19 banks may reach 600 billion dollars in 2009 and 2010. All told, if the
economy performs as badly as the worst case scenario used in the stress test,
the 19 banks' losses would mount to 950 dollars billion from mid-2007 through
2010.
U.S. regulators gave the banks that are found to
raise more capital one month to come out with the plan.
"Over the next 30 days, any bank holding company
(BHC) needing to augment its capital buffer will develop a detailed capital plan
to be approved by its primary supervisor, in consultation with the FDIC, and
will have six months to implement that plan," said a joint statement released by
Treasury Ministry and other regulators.
Banks needing to augment its capital buffer will have
until June 8th to develop a detailed capital plan, and until November 9th to
implement that capital plan.
NO RISK OF
INSOLVENCY
Some investors said the result of the government's
two-and-a-half month examination was less negative than many feared. Other held
out the idea that many banks would be able to boost their capital without
government's support.
The U.S. government hopes the results would help
restore confidence and encourage lending.
"This is just the beginning and we are going to keep
working to try and make sure this financial system is in ... a strong enough
position so it can provide the credit necessary for recovery," Treasury
Secretary Timothy Geithner, noting that none of the 19 banks are at risk of
insolvency.
His remarks were echoed by White House spokesman
Robert Gibbs.
"I think what we're likely to see is some confidence
in our financial system and some genuine clarity about the path moving forward,"
said Gibbs at the daily press briefing, noting the banks will emerge stronger to
help the economy rebound.
Earlier this week, Bernanke Tuesday also ruled out
the possibility of a massive new round of bailouts to save the U.S. banking
giants.
"I've looked at many of the banks and I believe that
many of them will be able to meet their capital needs without further government
capital," Bernanke told the Congress' Joint Economic Committee on Tuesday.
The government has said in the past that no large
bank will be allowed to fail.
The banks that require more funds could raise new
common equity from existing shareholders ore new investors, convert preferred
shares held by private investors or the government into common equity or sell
additional assets.
If banks still could not raise enough capital to meet
the stress test requirements, they could apply support from the 700 billion
bailout funds.
The unveiling of the result marked the end of a
process designed by the Obama administration to restore confidence in the
banking industry.
However, some economists and investors were skeptical
about the credibility of the tests.
"At best, the process may have been a waste of time;
at worst, it's something that has caused more confusion," said Mike Holland,
chairman of private investment firm Holland Co.
Photo taken on May 6, 2009 shows the
Metlife building in the borough of Manhattan, New York, the U.S.. U.S.
regulators Thursday unveiled the long-waited results of the government's
stress tests and found that 10 of the nation's 19 largest banks need to
raise 74.6 billion dollars in new capital to withstand possible future
losses. (Xinhua/Shen Hong)
Photo Gallery
TOUGH EXIT
RULES
U.S. regulators also imposed strict rules on banks
that want to exit the financial bailout program, requiring them to demonstrate
to the government that they can survive without its support.
Banks generally must apply to the Treasury and secure
permission from their bank supervisor in order to repay the federal bailout
funds, so far only a handful of small banks have done so.
The 19 largest banks seeking to withdraw from the 700
billion dollars rescue program will have to prove that they can borrow money
without the support of the Federal Deposit Insurance Corp, said the U.S.
regulators in a joint statement released on Wednesday.
The guarantee of debt issuance offered by the FDIC
allows banks to borrow money relatively inexpensively. Banks have more than
330billion dollars in debt outstanding under the program.
The new rules could deter some banks such as
Citigroup and Bank of America from trying to repay bailout funds early, said
analysts
Some banks including Goldman Sacks, JPMorgan Chase,
have vowed to exit the bailout program as soon as possible in part to prove
their financial health, but also to escape from tough rules governing executive
pay.
U.S. regulators set June 8 deadline for banks to develop capital
plan
WASHINGTON, May 6 (Xinhua) -- U.S. regulators said on
Wednesday that the nation's largest banks that were found to have the need to
raise more capital in the "stress tests" will have one month to develop the
plan.
After the details of the "stress tests" are released
on Thursday afternoon, any banks needing to augment its capital buffer will have
until June 8 to develop a detailed capital plan, and until Nov. 9 to implement
that capital plan, said the regulators. Full story
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