Results of the test of 19 banks

[Chris Coles]

For release at 5:00 p.m. EDT


The results of a comprehensive, forward-looking assessment of the financial conditions of the nation's 19 largest bank holding companies (BHCs) by the federal bank supervisory agencies were released on Thursday.
The exercise--conducted by the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation--was conducted so that supervisors could determine the capital buffers sufficient for the 19 BHCs to withstand losses and sustain lending--even if the economic downturn is more severe than is currently anticipated. In a detailed summary of the results of the Supervisory Capital Assessment Program (SCAP), the supervisors identified the potential losses, resources available to absorb losses, and resulting capital buffer needed for the 19 participating BHCs.

The SCAP is a complement to the Treasury's Capital Assistance Program (CAP), which makes capital available to financial institutions as a bridge to private capital in the future. Together, these programs play a critical role in ensuring that the U.S. banking sector will be in a position of strength.

Statement by Chairman Ben S. Bernanke
Overview of Results (333 KB PDF)
Related information

• Joint statement by Federal Reserve, Treasury, FDIC, and OCC on Treasury Capital Assistance Program and Supervisory Capital Assessment Program (May 6, 2009)
• The Supervisory Capital Assessment Program: Design Summary (287 KB PDF)
• Agencies to Begin Forward-Looking Economic Assessments (February 25, 2009)

http://www.federalreserve.gov/newsev.../20090507a.htm

[nero3]

Re: Results of the test of 19 banks

For release at 5:00 p.m. EDT


The results of a comprehensive, forward-looking assessment of the financial conditions of the nation's 19 largest bank holding companies (BHCs) by the federal bank supervisory agencies were released on Thursday.
The exercise--conducted by the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation--was conducted so that supervisors could determine the capital buffers sufficient for the 19 BHCs to withstand losses and sustain lending--even if the economic downturn is more severe than is currently anticipated. In a detailed summary of the results of the Supervisory Capital Assessment Program (SCAP), the supervisors identified the potential losses, resources available to absorb losses, and resulting capital buffer needed for the 19 participating BHCs.

The SCAP is a complement to the Treasury's Capital Assistance Program (CAP), which makes capital available to financial institutions as a bridge to private capital in the future. Together, these programs play a critical role in ensuring that the U.S. banking sector will be in a position of strength.

Statement by Chairman Ben S. Bernanke
Overview of Results (333 KB PDF)
Related information

• Joint statement by Federal Reserve, Treasury, FDIC, and OCC on Treasury Capital Assistance Program and Supervisory Capital Assessment Program (May 6, 2009)
• The Supervisory Capital Assessment Program: Design Summary (287 KB PDF)
• Agencies to Begin Forward-Looking Economic Assessments (February 25, 2009)

http://www.federalreserve.gov/newsev.../20090507a.htm

So Warren Buffet helped Wells Fargo to push up the share price, before the bad stress test results so he would get less diluted from their equity raising. Perfectly explains his behavior, in talking warmly about wells, and criticizing the stress tests. If he was so hot for Wells, he should really go in with the money

[Chris Coles]

Re: Results of the test of 19 banks

May 7, 2009
tg-123

STATEMENT FROM TREASURY SECRETARY TIM GEITHNER REGARDING THE TREASURY CAPITAL ASSITANCE PROGRAM AND THE SUPERVISORY CAPITAL ASSESSMENT PROGRAM

For Immediate Release: May 7, 2009
Contact: Office of Public Affairs, (202) 622-2960
For The Supervisory Capital Assessment Program: Overview of Results, visit link

Washington -- This afternoon, the Federal Reserve and the national banking agencies released the results of the stress tests - the most comprehensive, forward looking review of our nation's largest banks ever undertaken. These tests will help ensure that banks have a sufficient capital cushion to continue lending in a more adverse economic scenario. They will provide the transparency necessary for individuals and markets to judge the strength of the banking system.


This capital assessment is an important part, but just one part of the President's comprehensive plan to stabilize and repair the financial system and help get credit flowing again. Over the last three months, we have put in place a series of programs to address the housing crisis, to help restart the securities markets that are critical to business and consumer lending, to catalyze small business lending in particular, and to help create a market for legacy real estate related loans and thereby help clean up bank balance sheets.

Alongside these programs, we have worked to restore confidence in the banking system. The assessment announced today will help strengthen the lending capacity of banks, with greater transparency and actions to reinforce the amount of capital banks hold against the risk of future losses. Capital is critical to lending. Each dollar of capital generates up to 12 dollars of lending capacity. And each dollar of lending capacity helps businesses grow and reduces the cost of borrowing for firms and families.

• Greater disclosure will help improve confidence. Today's results should make it easier for investors to evaluate risk and to differentiate across institutions. The stress test will help replace the cloud of uncertainty hanging over our banking system with an unprecedented level of transparency and clarity. This is important, as markets work best when they have full access to the information on which to make informed investment decisions. With better disclosure, private capital is more likely to flow into the financial system, which will accelerate the point at which banks can replace the government's investments.
• Banks will be given a range of options to ensure they have a substantial capital cushion. 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. If these options are not sufficient, they can request additional capital from the government through Treasury's Capital Assistance Program. Banks must submit a detailed capital plan to supervisors, who will consult with Treasury on the development and evaluation of the plan.
  
• Some banks will be able to begin to repay the government. Those institutions that do not need to raise additional capital will have the opportunity to repay the government's existing capital investments. To do this, they will need to demonstrate that they are able to issue debt without FDIC guarantees, as some banks have already begun to do.

Going forward, in the event that financial institutions need significant government assistance in terms of the quantity or composition of capital, then in consultation with supervisors, Treasury will evaluate whether existing board and management are strong enough to restore the firm to viability without government assistance. Where Treasury does take common equity, we will seek to return the company to purely private ownership as quickly as possible, and will be guided by the basic principle that the best way to serve the interest of shareholders and taxpayers is to exert our influence only on core governance issues and not on day-by-day operations.

• This was a carefully designed, credible test. Banks supervisors applied a historically high set of loss estimates on securities and loans, as well as a conservative view towards potential earnings that could act as a buffer against those losses. Taking into account the banking system's existing capital and reserves, the public now has a better idea of how much capital banks will need to ensure they have sufficient capacity to continue providing credit in a more adverse economic downturn. These are estimate of potential losses and earnings that could occur in the event of a more severe recession. They are not a prediction of where the economy is headed. The results are less acute than some had expected, in part because concern about the risk of a more severe recession have diminished, market have improved, and banks, in anticipation of the release of the stress test, have acted in the last few months to increased capital.
  
• The banks that did not undergo the stress test will have access to capital on the same terms as the largest banks. To this end, the deadline for access to the preferred stock issued under the existing CPP has been extended for an additional six months, and Treasury will continue to examine other ways to ensure that small banks across the country can access capital so that they can continue providing credit to their communities. Supervisors will not extend the stress test to the rest of the banking system.

Our government has taken extraordinary actions to ensure the stability of our banking system because this is essential to contain the risk of a worse recession and to lay the foundation for a sustainable recovery.
With this support, and with the clarity provided by today's announcement, banks should be able to get back to the business of banking. Those in leadership positions in our banks are going to have to work hard to repair the loss of confidence in the financial system and regain the public's trust. They can do this by expanding lending to creditworthy families and small businesses that we depend on to generate economic growth. And they need to demonstrate that they are reforming compensation practices to reinforce limits on future risk taking. And this responsibility must be felt by all banks, including those that hope to be in a position to repay the government's capital investments.

Today's stress test results are an important step forward in the Administration's plan to lead us on the path to economic recovery. Americans should know that the government stands behind the banking system and that their deposits are safe. The actions taken by Congress, the FDIC and the Federal Reserve have improved market confidence and reduced the threat of systemic risk. Mortgage rates have fallen to historic lows, home refinancing has increased significantly, credit spreads have narrowed and companies in recent weeks have found it easier to issue debt to finance new investments.

This is just a beginning, however. Even with the recent signs of stabilization in economic activity, the economic still faces significant risks and challenges. The cost of credit remains exceptionally high. We have more work to do, and recovery will take time. But we are starting to see some signs of progress toward financial repair, and we will continue to work to expand the availability of credit and improve the impact our new set of credit and lending programs.

http://www.treasury.gov/press/releases/tg123.htm

[jimmygu3]

Re: Results of the test of 19 banks

For release at 5:00 p.m. EDT


The results of a comprehensive, forward-looking assessment of the financial conditions of the nation's 19 largest bank holding companies (BHCs) by the federal bank supervisory agencies were released on Thursday.
The exercise--conducted by the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation--was conducted so that supervisors could determine the capital buffers sufficient for the 19 BHCs to withstand losses and sustain lending--even if the economic downturn is more severe than is currently anticipated. In a detailed summary of the results of the Supervisory Capital Assessment Program (SCAP), the supervisors identified the potential losses, resources available to absorb losses, and resulting capital buffer needed for the 19 participating BHCs.

The SCAP is a complement to the Treasury's Capital Assistance Program (CAP), which makes capital available to financial institutions as a bridge to private capital in the future. Together, these programs play a critical role in ensuring that the U.S. banking sector will be in a position of strength.

Statement by Chairman Ben S. Bernanke
Overview of Results (333 KB PDF)
Related information

• Joint statement by Federal Reserve, Treasury, FDIC, and OCC on Treasury Capital Assistance Program and Supervisory Capital Assessment Program (May 6, 2009)
• The Supervisory Capital Assessment Program: Design Summary (287 KB PDF)
• Agencies to Begin Forward-Looking Economic Assessments (February 25, 2009)

http://www.federalreserve.gov/newsev.../20090507a.htm

Thanks, Chris. I can't wait to hear the iTulip experts' analysis of this. I don't have the time or the expertise to digest it. However, this caught my eye. Morgan Stanley projected to have a 45% CRE loss rate, with GMAC and StateStreet at 35%!

Also (not pictured), the median loss rate for credit card loans of 22.3% is pretty striking. Of course, this is all for the "more adverse scenario". We know that won't happen, right?

Jimmy

[SuitablyIronic]

Re: Results of the test of 19 banks

Only five of the institutions were assessed for their derivates risk. Each seems to have been given a number of around $20 billion, making a total of $99 billion.

This has to be a load of manure. It looks as if a number was pre-determined ("let's call it 100K, put 99.3 in the report and split it up about even"). What ever happened to the other $500 trillion of derivatives? It can't all have been wished away.

[don]

Re: Results of the test of 19 banks

Headlines, front page, New York Times coverage of stress test results:

SOME BIG BANKS ARE IN NEED OF MORE CAPITAL

TEST RESULTS DUE OUT

U.S. Rescue Money May Fill Gap and Avoid Any New Bailout

[Ghent12]

Re: Results of the test of 19 banks

U.S. Rescue Money May Fill Gap and Avoid Any New Bailout

What the hell does that mean?

[flintlock]

Re: Results of the test of 19 banks

What the hell does that mean?

lol, my thoughts exactly. I guess rescue money isn't a bailout?

[don]

Re: Results of the test of 19 banks

lol, my thoughts exactly. I guess rescue money isn't a bailout?

George! Where's George!!! Have we won yet? Is Eastasia defeated?

[idianov]

Re: Results of the test of 19 banks

Thanks, Chris. I can't wait to hear the iTulip experts' analysis of this. I don't have the time or the expertise to digest it. However, this caught my eye. Morgan Stanley projected to have a 45% CRE loss rate, with GMAC and StateStreet at 35%!

Also (not pictured), the median loss rate for credit card loans of 22.3% is pretty striking. Of course, this is all for the "more adverse scenario". We know that won't happen, right?

Jimmy

Where did Goldman hide Commercial Real Estate Assets? :confused:

More on the Goldmans Sachs - GGP Connection

[Supercilious]

Re: Results of the test of 19 banks

When Bernie Madoff told his sons "It's all a Ponzi Scheme!" he was not talking about Madoff investment funds, he was talking about Wall Street in general.

[metalman]

Re: Results of the test of 19 banks

When Bernie Madoff told his sons "It's all a Ponzi Scheme!" he was not talking about Madoff investment funds, he was talking about Wall Street in general.

he turned himself in to protect his sons. that's the difference between madoff and all the others... familial responsibility.

[Jim Nickerson]

Re: Results of the test of 19 banks

http://roomfordebate.blogs.nytimes.c...ess-test/#yves

Yves Smith:

But the stress tests fell far short of the needed level of review. First, they were administered by the industry based on scenarios provided by the industry. Most observers found the “adverse” case to be too optimistic. Even worse, banks got to use their own risk models, the same ones that got them into trouble. And there was no independent verification of the quality of the accounting. The number of examiners per bank was well short of what you’d need to probe a single business, much less an entire firm.

Second, the industry got to negotiate the results. This is simply unheard of. That suggests both a lack of confidence in the process and a lack of belief on the part of the key actors (Treasury Secretary Timothy Geithner, in particular) that the government needs to set the parameters and demand compliance.

Wm. K. Black:

Bottom line: there were no real examinations. Banks continue to overstate asset quality. The bankers pressured Congress, which extorted the Financial Accounting Standards Board, which gutted the accounting rules on loss recognition. Because there were no real examinations, there were no real stress tests. So only one question is key: why does Treasury believe that anyone will believe its compound fiction?

[rjwjr]

Re: Results of the test of 19 banks

http://roomfordebate.blogs.nytimes.c...ess-test/#yves

Yves Smith:

But the stress tests fell far short of the needed level of review. First, they were administered by the industry based on scenarios provided by the industry. Most observers found the “adverse” case to be too optimistic. Even worse, banks got to use their own risk models, the same ones that got them into trouble. And there was no independent verification of the quality of the accounting. The number of examiners per bank was well short of what you’d need to probe a single business, much less an entire firm.

Second, the industry got to negotiate the results. This is simply unheard of. That suggests both a lack of confidence in the process and a lack of belief on the part of the key actors (Treasury Secretary Timothy Geithner, in particular) that the government needs to set the parameters and demand compliance.

Wm. K. Black:

Bottom line: there were no real examinations. Banks continue to overstate asset quality. The bankers pressured Congress, which extorted the Financial Accounting Standards Board, which gutted the accounting rules on loss recognition. Because there were no real examinations, there were no real stress tests. So only one question is key: why does Treasury believe that anyone will believe its compound fiction?

Lost Dog
Please return if found


Answers to the name "Truth"

Truth, where have you gone, boy? Will we ever see you again?

[thunderdownunder]

Re: Results of the test of 19 banks

No nobody even understands the rules of the game. Ive read the design summary of the first post and then trawled to find some bright journalist that has stiched the results with the test - guess what - Zilch - bubkass- nil - nothing.
so I committed suicide trying to work out what it all means - basically its paltry - the 19 expect to lose a tiny $600,000,000,000 in 2009-2010 total but this wont include the small caps of which you have a truck load.
But - working out the "worst case" senario was a little harder as the worst case is a hopefull guess unless of course you live in the future - what is a worst case ? who knows - like yesterday I had a job,today I don't, the following day my dog dies and the day after my GM pick-up spits the motor, come Monday the wife leaves with the Investment Banker who has been cleaning her pipes and empties the bank account on the way out the door,then the doctor rings about my tests and tells me Ive got 3 months to live and then Tuesday the Bank manager rings to tell me the cheque I wrote Friday to the mechanic that fixed the motor on the GM pickup that's spitting oil over the drive and down the street has frigging bounced (thanks Loving wife)and would I be so kind as to deposit $110.52c in the account to cover the fees and then the local authorities come around and fine me $5600.56c for polluting the waterways with oil from the Gm pickup motor which spat the dummy and then warns me additional charges will be sent once the full clean up is known. So I walk down to the corner drug store to get me a BIG bottle of JD whisky on the credit card (cause all Married men know they NEVER hold cash) The first card is overdrawn (I'm getting REALLY Cranky with the EX) so I flip the next one down No to that too( that F#@&*^g woman is unreal) so out comes MY amex and I get a hit - better get some cash out so I can eat a meal at Denny's tonite - what happens next is surreal (or so I thought) - Yep some low life who has been out of work since Macy's laid him off and has 6 kids and one on the way to feed (NAH, he's not a sex maniac she had 3 from the prevoius + his 3 makes 6 and the one on the way well it happens OK ) DECIDES that my cash and the Till cash are much the same. Of course I object and get shot three times. Well here's me laying in a pool of blood and the Paras come to pick me up ( cops just walked straight over me) They are nice caring men an ask me if Im insured - of course I am- the Missus handles the bills - they pull the blue card - phone to confirm if I'm covered and come back to me with the news that I really should have strangled that female a Long time ago. Any way I convince them Ive got a job, a missus that works for an well known Investment banker and a GM Pickup I own and is Low mileage as I don't drive it much plus shares in a little oil company which cost me $5600 with a lot of upside to come once they know how far the oil they discovered goes and of course I have an AAA+ credit history. Convinced Im a reasonable risk they stem the bleeding and put me into the back and head off to the emergency department of the local county hospital. So heres me thinking it can't get any worse and how if I get hold of the Ex Im gunner give her a slow and very painfull "full Brazillian" with the cheap chinese wire nips in got for Christmas topped off by crashing the party through the "Tradies entrance" for good measure, when the Ambulance pulls on the anchors BIGTIME and starts to slew all over the road. As this is happening my mobile rings (this REALLY happened today Gang) its GMAC credit collection on the line asking where the $586 is that I owe them. Now I'm a stickler for paying on time and I know I Paid that GM pick up off - 4 payments @ $11968.32 on a 48 month plan paid yearly on 0% interest loan and I have all the paper work to prove its frigging mine. This dude gets all confused going through my payment history as it appears I'm unusual in that I have paid on time and the full amount without excuses they normally get from the "usual clients" so it appears that GMAC/Ceribus have decided that all loans that have been discharged (and mine was a year ago) have to pay an additional charge to cover that discharge and all the messy paper work that occurs when someone has the Audacity to actually pay a loan out and not roll it into a new Vehicle. I Say's "see you in court mother #$@%r" as I only have 3 months to live, Im broke, got no job, no credit, no cash, no Car (but I own a hell of a lot of oil) Three bullets in me and the Ex is probably got the"tower of terror" in her.


but thats the worse case senerio or so I thought.

Seems the property prices and subsequently the rates recieved by the county have plunged faster than than an investment banker into a new and unexplored private venture area. Who would have thought that property prices would fall when the county worked out its formula to set rates based on an inflationary monetary system that guaranteed more property rates each year. Because they have fallen so far, cuts to services had to be made and the easiest to hide were the incidentals such as engineers checking county structures like roads,bridges, culverts and the like ........

It appears the bridge we have stopped on in the ambulance while I was telling GMAC to get stuffed on the mobile phone was eaten out with concrete cancer (similar to what is gunna kill me in three months) and no one was paid to check because cuts had to be made in the annual budget due to the shortfall in income because some idiot said use this formula as housing never falls in value so you never have to worry about falling revenue.

And then, the ambulance lurched to one side and steeply forward. Me having nothing but time on my hands thought about the worst possible senerio of this alarming outcome.
I might have three months to live if I survive this fall into the Mississippi river and yes Im broke, got no job, no cash, no credit, no working car (but a share in a shit load of oil ) and an Ex missus who I am covinced don't love me anymore,three bullets in me and GMAC on my ass thinking they are going to collect $586 on the small print in the loan documents. Yes this is a bad as it can get. The worst Case senerio.

Then we hit the water- Not as fast or as hard as I thought we would, in fact the initial fall was fast but it slowed as time went on caused no doubt by the crushing of the other structures under the bridge like the paddle wheeler carrying 562 people which broke the fall like a government fiscal stimulus package (you know - mostly volume but no real substance)
How bad can this get I thought as the cold water rushed in to the ambulance - I thought again about the worst possible senerio and what I needed to avoid it as I lost breath and I closed my eyes

When I regain my senses as a reborn, I'm Ben Bernanke - Chairman of the Fed, the ruler of the world and the holder of mankinds future and I KNOW FOR A FACT there is no GOD but me And that truly is the Worst Case Senerio you will ever face.

"Ka ching Ka Ching a finger is a powerful thing especially when a trillions the thing."