Geithner: Stress tests clear bank 'uncertainty'

Treasury Secretary says the government's assessment of 19 major banks will help bring capital into the financial system.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Ben Rooney, CNNMoney.com staff writer

tim_geithner_090303.03.jpg
Treasury Secretary Tim Geithner says bank stress tests will bring more capital into the financial system.
Video
The Fixers
7 people are in charge of rescuing the economy. Here's who they are and how they plan to do it.

NEW YORK (CNNMoney.com) -- Treasury Secretary Tim Geithner said Thursday the stress tests of the nation's biggest financial services companies will help bring capital into the financial system by lifting the "fog of uncertainty" over the banking sector.

The results of the stress tests, which were conducted on 19 of the nation's largest banks, are due to be officially released later Thursday. The goal is to assess the banks' health and determine which may need to raise more cash to be considered stable enough to withstand another economic downturn.

"We chose a strategy to lift the fog of uncertainty over bank balance sheets and to help ensure that the major banks, individually and collectively, had the capital to continue lending even in a worse than expected recession," Geithner wrote in a New York Times op-ed.

"The effect of this capital assessment will be to help replace uncertainty with transparency," he said.

Geithner said the transparency provided by the tests will allow investors to distinguish healthy banks from those without adequate resources.

"It will also bring more private capital into the financial system," he said.

That will ultimately give banks more leeway to lend money to businesses and consumers. The return of private capital will also enable banks to repay their government loans, according to Geithner.

However, Geithner said banks will have the opportunity to request more capital from the government through the Treasury Department's Capital Assistance Program.

"Treasury is providing this backstop so that markets can have confidence that we will maintain sufficient capital in the financial system," he said.

Geithner said some banks will continue to restructure, selling off certain businesses, as they take steps to raise capital over the next six months.

He said "hundreds of supervisors" at the Federal Reserve, which oversaw the tests, worked over 45 days on "rigorously reviewing the banks' detailed loan data."

"They applied exacting estimates of potential losses over two years, along with conservative estimates of potential earnings over the same period, and compared them with existing reserves and capital," he said.

The test results have been the subject of much speculation as details have already begun to emerge.

Reports surfaced late Tuesday that Bank of America (BAC, Fortune 500) may need roughly $34 billion in capital to weather a more painful economic environment. Wells Fargo (WFC, Fortune 500) and Citigroup (C, Fortune 500) have also been frequently mentioned in recent days as two institutions in need of capital.

Other banks are believed to be in better condition. Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) have been increasingly cited as companies that probably won't be required to raise capital. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
These 10 food trends could dominate 2015 So long, kale. Here's what's expected to shake up the food industry next year. More
Beyond Russia: Geopolitical hot spots in 2015 Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More
These 20 antique guns could fetch big bucks Morphy Auctions in Pennsylvania is putting nearly 1,000 old guns on the block. Here are just a few. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.