Feds to ‘stress test’ banks too big to fail
Paul Kiel at ProPublica has compiled a list of the nation’s largest banks likely to go under increased scrutiny by federal bank regulators after receiving billions of dollars in TARP bailout money. Neither the feds nor the banks will say which ones receive “forward-looking economic assessments.”
If you’re like me, with a bank on the list, resist the urge to strangle your friendly local lending institution with the EKG cords dangling from your own gasping account.
The assessments, directed by regulators but performed by the banks themselves, will analyze how a bank would fare under a grim economic scenario (some argue not grim enough) in the next couple of years.
Based on those tests, the Treasury will force the bank to raise a specified amount of money – between 1 percent and 2 percent of the company’s risk-weighted assets, though in special cases the Treasury could decide more is needed. If the money can’t be raised privately, the Treasury will provide it. For the biggest banks, like Bank of America and JPMorgan Chase, 1 percent of risk-weighted assets amounts to about $13 billion. If the Treasury decided each institution required the maximum, more than $140 billion would be needed, most of that likely coming from public coffers. The investments will made as preferred shares convertible to common shares.
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