Banks fail stress test, require more Fed bailout
Today’s ‘Cinco de Mayo (May 5th) Wall Street Journal (WSJ) reports that ten of 19 of the nation’s largest banks failed the Fed stress test, and will require more capital or face the possibility of insolvency or receivership (i.e., ‘Nationalization’). The Obama administration announced the stress tests — a process of examining banks’ ability to withstand future losses — back in February. At the time, the news sparked concern among investors and depositors that the results would be used to shut down or nationalize some of the country’s weaker or functionally insolvent financial institutions. the U.S. government is expected to direct about 10 of the 19 banks undergoing government stress tests to boost their capital, according to several people familiar with the matter, a move that officials hope will quell fears about the solvency of the financial sector. One of the affected banks, Bank of America, announced plans over the weekend to raise $10 Bn in fresh capital.
The precise banks affected remains under discussion, but will be announced on Thursday. It could include Wells Fargo & Co., Bank of America, Citigroup Inc. and several regional banks. At one point, officials believed as many as 14 banks would need to raise more funds to create a stronger buffer against future losses, these people said, but that number has fallen in recent days.
Representatives from Wells, Bank of America and Citi declined to comment.
Feliz Cinco de Mayo!
