<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>US will save banks that fail stress tests
</TR><!-- headline one : end --><TR>But regulators could force many of the largest lenders to raise and conserve capital </TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
</TD><TD vAlign=bottom>
The stress tests were conducted at the Federal Reserve Bank of Chicago. -- PHOTO: AP
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->Washington - The Federal Reserve says the United States government is prepared to rescue any of the banks that underwent 'stress tests' and were deemed vulnerable should the recession worsen sharply.
However, financial regulators could force many of the largest US banks to raise new capital or conserve extra cash after accounting for assets held off their balance sheets.
Outlining the tests' methodology, the Fed said on Friday that the 19 banks that held half of the loans in the US banking system would not be allowed to fail - even if they fared poorly on the stress tests.
But the accounting change, which incorporated a proposal that would bring about US$900 billion (S$1.36 trillion) onto lenders' books, suggested most of the 19 banks would need to take some action to buttress their capital, analysts said.
Stronger banks might keep dividend payments low or apply retained earnings, and others might sell new shares to cover the amounts, they said.
'We think that most banks are going to have to raise capital through some or all of those means,' said Mr Dino Kos, a former markets director at the Federal Reserve Bank of New York. 'All of them will need to conserve capital through retained earnings.'
The assessments calculate the capital buffer the 19 biggest banks will need to keep making loans even if the economic downturn worsens this year and next year. They also put a focus on common stock as a key component of capital.
Ms Karen Petrou, managing partner of Washington-based research firm Federal Financial Analytics, said banks might need as much as US$70 billion in new capital just to cover the added burden of the accounting changes.
The report is part of a government effort to restore public confidence in banks, some of which have seen their capital 'substantially reduced' by the recession and financial crisis.
Banks were given preliminary results from the stress tests on Friday, with final results due for publication on May 4.
Financial stocks advanced on Friday even as the report stopped short of indicating how much new money the regulators would demand to be raised.
The Dow Jones Industrial Average rose 119.23 points, or 1.5 per cent, to 8,076.29.
The report said most banks had capital well in excess of regulatory requirements, without specifying how the stress tests would have an impact on those levels.
White House Chief of Staff Rahm Emanuel said in a Bloomberg interview that the tests would reveal 'gradation', with some being 'very, very healthy' and others needing assistance.
The Fed's report said a bank's capital buffer assessment was not a measure of the current solvency or viability of the firm.
Regulators have been concerned that the release of the test results may roil the shares of banks with the largest capital needs, people familiar with the matter have said.
The 19 firms include Citigroup, Bank of America, Goldman Sachs, GMAC, MetLife and some regional lenders.
While Citigroup and Bank of America remain troubled, regional lenders, including Regions Financial, SunTrust and KeyCorp, are girding for huge losses.
They are among the hardest-hit by the housing bust, and are saddled with a pile of commercial real estate and corporate loans expected to sour further this year.
Regions Financial, for example, added just US$35 million to its reserves for future loan losses in the first quarter, an amount analysts said might not be enough to cover a surge in its non-performing loans.
Friday's announcement also reinforced the view that major financial firms were 'too big to fail', and that the government should do whatever was necessary to save them, said former Fed examiner Mark Williams. Bloomberg, AP, NYT
</TR><!-- headline one : end --><TR>But regulators could force many of the largest lenders to raise and conserve capital </TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
The stress tests were conducted at the Federal Reserve Bank of Chicago. -- PHOTO: AP
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->Washington - The Federal Reserve says the United States government is prepared to rescue any of the banks that underwent 'stress tests' and were deemed vulnerable should the recession worsen sharply.
However, financial regulators could force many of the largest US banks to raise new capital or conserve extra cash after accounting for assets held off their balance sheets.
Outlining the tests' methodology, the Fed said on Friday that the 19 banks that held half of the loans in the US banking system would not be allowed to fail - even if they fared poorly on the stress tests.
But the accounting change, which incorporated a proposal that would bring about US$900 billion (S$1.36 trillion) onto lenders' books, suggested most of the 19 banks would need to take some action to buttress their capital, analysts said.
Stronger banks might keep dividend payments low or apply retained earnings, and others might sell new shares to cover the amounts, they said.
'We think that most banks are going to have to raise capital through some or all of those means,' said Mr Dino Kos, a former markets director at the Federal Reserve Bank of New York. 'All of them will need to conserve capital through retained earnings.'
The assessments calculate the capital buffer the 19 biggest banks will need to keep making loans even if the economic downturn worsens this year and next year. They also put a focus on common stock as a key component of capital.
Ms Karen Petrou, managing partner of Washington-based research firm Federal Financial Analytics, said banks might need as much as US$70 billion in new capital just to cover the added burden of the accounting changes.
The report is part of a government effort to restore public confidence in banks, some of which have seen their capital 'substantially reduced' by the recession and financial crisis.
Banks were given preliminary results from the stress tests on Friday, with final results due for publication on May 4.
Financial stocks advanced on Friday even as the report stopped short of indicating how much new money the regulators would demand to be raised.
The Dow Jones Industrial Average rose 119.23 points, or 1.5 per cent, to 8,076.29.
The report said most banks had capital well in excess of regulatory requirements, without specifying how the stress tests would have an impact on those levels.
White House Chief of Staff Rahm Emanuel said in a Bloomberg interview that the tests would reveal 'gradation', with some being 'very, very healthy' and others needing assistance.
The Fed's report said a bank's capital buffer assessment was not a measure of the current solvency or viability of the firm.
Regulators have been concerned that the release of the test results may roil the shares of banks with the largest capital needs, people familiar with the matter have said.
The 19 firms include Citigroup, Bank of America, Goldman Sachs, GMAC, MetLife and some regional lenders.
While Citigroup and Bank of America remain troubled, regional lenders, including Regions Financial, SunTrust and KeyCorp, are girding for huge losses.
They are among the hardest-hit by the housing bust, and are saddled with a pile of commercial real estate and corporate loans expected to sour further this year.
Regions Financial, for example, added just US$35 million to its reserves for future loan losses in the first quarter, an amount analysts said might not be enough to cover a surge in its non-performing loans.
Friday's announcement also reinforced the view that major financial firms were 'too big to fail', and that the government should do whatever was necessary to save them, said former Fed examiner Mark Williams. Bloomberg, AP, NYT
