Who Passed the Stress Test?
At 5 p.m. Eastern Daylight Time today, the Federal Reserve and Treasury unveiled the official results of the Supervisory Capital Assessment Program (SCAP), revealing that ten of the 19 participating banks need to increase their capital buffers for a combined total of $74.6 billion. The SCAP conducted stress tests on the nation’s largest bank holding companies to predict “potential losses, the resources available to absorb losses, and the resulting capital buffer needed” based on various economic scenarios.
The banks needing to increase their capital buffers will have to work with their primary regulators, in consultation with the FDIC, to develop a capital plan sometime in the next 30 days (by June 8, 2009), and they will have six months to implement the plans (by November 9, 2009).
Each capital plan must contain the following three elements:
- A detailed description of specific actions the bank will take to increase capital in order to satisfy the capital buffer requirement. Treasury and the Fed encourage banks to raise new capital from private sources.
- A list of steps to address weaknesses in the bank’s internal processes for assessing capital needs and engaging in capital planning.
- An outline of steps the bank will take over time to repay government-provided capital.
As part of their 30 day review process, banks are also directed to evaluate their existing management and board of directors to make certain their leadership has the capability to “manage the risks presented by the current economic environment and maintain balance sheet capacity sufficient to continue prudent lending to meet the credit needs of the economy.”
The banks needing to increase their capital buffer (amounts in billions) are Bank of America ($33.9); Citi ($5.5); FifthThird ($1.1); GMAC ($11.5); KeyCorp ($1.8); Morgan Stanley ($1.8); PNC ($0.6); Regions ($2.5); SunTrust ($2.2); and Wells Fargo ($13.7). See the Fed report for more details.
Federal Reserve: Supervisory Capital Assessment Program - Overview of Results (PDF)
