09 May 2009

US stress test shows positive results

None of the 19 banks subjected to government stress tests are insolvent, Timothy Geithner said. However, roughly half the firms need to enhance their capital structure to put greater emphasis on common equity.

Treasury Secretary Timothy Geithner said none of the 19 banks subjected to government stress tests are insolvent, which should reassure investors and the public that the U.S. financial system is sound.

 

However, some institutions will be required to take steps to improve the quality and/or the quantity of their capital to give them a larger cushion to support future lending even if the economy performs worse than expected. 

 

“These institutions have a range of options to raise capital in the private markets, including common equity offerings, asset sales and the conversion of other forms of capital into common equity”, the Treasury said. “If these options are not sufficient, they can request additional capital from the government through Treasury's Capital Assistance Program.”

 

The examiners found that nearly all the banks that were evaluated have enough Tier 1 capital to absorb the higher losses envisioned under the hypothetical adverse scenario, Federal Reserve Chairman Bernanke said. 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. Many of the institutions have already taken actions to bolster their capital buffers and are well-positioned to raise capital from private sources over the next six months.

 

Press release Treasury

Press release Fed

Statement by Chairman Ben S. Bernanke

Overview of Results

 

Related information

Joint statement by Federal Reserve, Treasury, FDIC, and OCC on Treasury Capital Assistance Program and Supervisory Capital Assessment Program

The Supervisory Capital Assessment Program: Design and Implementation

Agencies to Begin Forward-Looking Economic Assessments

 

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