Tuesday, April 14, 2009

Bankers getting stressed

Remember the stress tests?

Some time ago, the U.S. government announced that it was going to conduct "stress tests" of 19 major banks. Well, it's possible that results of the tests may be released:

Until now, the Treasury Department has simply said that it will reveal the amounts of any new infusions of capital into banks that regulators judge to be at risk if the economic downturn is prolonged or the economy takes a further dive.

The administration’s hand may have been forced in part by the investment firm Goldman Sachs, which successfully sold $5 billion in new stock on Tuesday and declared that it would use the proceeds and other private capital to repay the $10 billion it accepted from the government in October....

Goldman’s action has put pressure on other financial institutions to do the same or risk being judged in far worse shape by investors. The administration feared that details on healthier banks would inevitably leak out, leaving weaker banks exposed to speculation and damaging market rumors, possibly making any further bailouts more costly.

More here (New York Times). But the government won't just dump the results out there; it will explain them:

U.S. regulators are preparing a public guide to bank "stress tests" to explain their methodology and how to interpret industrywide results, sources familiar with the planning told Reuters on Tuesday.

The sources said it is unclear exactly when the "concept paper" will be released, but it is anticipated it will be before the U.S. Treasury Department announces aggregate results at the end of April or the beginning of May.

"It will be a framework to understand the results," one of the sources said.

I'm not sure whether this will help frame the discussion, or whether results will be sensationalized out of all proportion anyway.

More here (Reuters UK).
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