Stress Tests Results

In Financials, Politics on May 7, 2009 at 11:45
Treasure Secretary - Tim Geithner

Treasury Secretary - Tim Geithner

For the past two and a half months, the Fed’s regulators have been assessing the balance sheets of the 19 biggest banking institutions in the USA. Their purpose is to figure out which of these institutions are in need of more capital in case recession worsens, in an effort to avoid more bail-outs and moral hazard phenomena.

The results are out today and at least half  a dozen of the 19 banks , including Goldman Sachs, JP Morgan Chase and American Express, won’t be told to raise additional capital.

On the other hand, regulators have found Bank of America in need to raise $34bln, Wells Fargo $13 – $15bln, GMAC LLC $11.5bln, Citigroup $5bln and Morgan Stanley $1.5bln.

The news were embraced by the markets as analysts expected much worse results. As Treasury Secretary Tim Geithner said earlier, the stress tests show no threat of bankruptcy for any of the examined institutions. Geithner also pointed out that he expects the majority of the banks in need of capital to raise it from the private sector with the government assisting them in case of difficulty to do so.

Some people, including Nouriel Roubini, have been critical of the stress tests suggesting that they shouldn’t be misinterpreted as a sign of bank health.

I’d say that the stress tests have been the most radical and effective measure of the Obama administration so far, restoring confidence in the markets and providing a transparent platform to resume talks and assistance between banks and the governement.

Detailed results will be disclosed tonight after the closing of the US markets.

by The Self-Seeker


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