U.S. Weighs Revealing Each Bank’s Capital Needs After Tests
The Obama administration may direct banks judged to need capital after stress tests to disclose how they plan to get additional funds when the government reveals the results May 4, a person familiar with the matter said.
Officials are discussing a release that will show the assessments for each of the 19 biggest U.S. banks, said the person, who spoke on condition of anonymity because a decision hasn’t been made. Lenders would specify whether they will issue new stock, seek a conversion of government preference shares, or rely on additional taxpayer funds, according to the person.
By pushing for detailed disclosure, the administration is seeking to give the public the ability to differentiate the health of the nation’s major lenders. The move would also address the concerns of some investors that banks needing extra money will be punished without a detailed strategy already in place to get the capital.
“Transparency is critical,” said Bill Brown, a visiting professor at Duke University School of Law in North Carolina and a former managing director at Morgan Stanley. “While banks have pushed to keep the kimono closed, the stress tests have forced it open.”
Financial regulators remain concerned about investors’ reaction to a bank that wants to seek private money but doesn’t have a firm commitment, one official said. The Treasury’s capital-assistance program gives companies six months to obtain the funding.
Provisional Capital
In one scenario under discussion, firms that fall between those strong enough to forgo new capital and those that need injections, the Treasury would provide the money immediately and the banks would announce that the investment is provisional.
“Where there is a need for additional capital,” banks will “work out with their primary supervisors what’s the best mix” of options, Treasury Secretary Timothy Geithner told a congressional oversight panel in Washington two days ago faxless payday loans. Choices include converting previous government investments from preferred to common stock, getting money from private sources or tapping the $700 billion financial-rescue program, he said.
The Treasury and banking regulators are still working out the final details of how to reveal the test results and plans could change, said the person. Generally, the regulators favor less disclosure because bank exam data is confidential, while the Treasury advocates releasing more details.
Stocks Drop
U.S. stocks retreated yesterday, led by financial shares. Morgan Stanley tumbled 9 percent after posting a wider-than- forecast loss, while KeyCorp tumbled 13 percent after BMO Capital Markets said credit problems are spreading. Wells Fargo & Co. fell 3.4 percent after Chief Financial Officer Howard Atkins said “credit may not have turned yet.”
Banks are expected to begin getting preliminary results from the reviews on April 24, the same day the Federal Reserve is scheduled to release the methodology for the exams.
The central bank is leading the assessments, which are designed to ensure that firms have enough capital to weather a deeper economic downturn over the coming two years.
Regulators conducting the stress tests are increasingly focusing on the quality of loans banks made after finding wide variations in underwriting standards, a regulatory official said earlier this week. They concluded that banks’ lending practices need to be given as much weight as macroeconomic scenarios in determining the health of each bank, the person said.
In his prepared statement for the April 21 oversight hearing, Geithner said “the vast majority of banks have more capital than they need to be considered well capitalized by their regulators.”