Stress test CEOs likely to keep jobs

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The closely-watched S&P Banking index has recovered nicely over the last 3 months, easing banks' efforts to raise more capital.

NEW YORK (CNNMoney.com) -- The government forced former General Motors CEO Rick Wagoner to step down earlier this year. But it looks like top banking executives will avoid suffering the same fate.

Last month, banking industry regulators ordered the ten banks that needed to raise more capital as a result of the government's stress tests to review their senior management and board members to make sure they had the right people in place to navigate the recession.

Next Monday is the deadline to give regulators this assessment.

In the weeks leading up to the announcement of the stress test results, the fates of two CEOs -- Citigroup's (C, Fortune 500) Vikram Pandit and Bank of America (BAC, Fortune 500) chief Ken Lewis -- were the subject of much speculation. Lewis has already lost his title as chairman following a shareholder vote at the company's last annual investor meeting.

Luckily for them, the stock market, and bank stocks in particular, have enjoyed a healthy rally during the past three months due to economic recovery hopes. An improving economy typically translates into fewer loan losses for banks.

The ten banks that needed to raise capital have taken advantage of this newfound optimism, managing to raise a significant portion of the $75 billion in capital required by the government through the sale of stock.

Bank of America, for example, said Tuesday it had already raised nearly $33 billion in capital and would "comfortably exceed" the $33.9 billion target that the government asked of it. Other banks, including Morgan Stanley (MS, Fortune 500) and regional banking giant PNC (PNC, Fortune 500) have either met, or exceeded, regulators' stress test requirements.

So even though the chief executive officers of top banks remain under severe scrutiny for the mistakes made before and during the credit crisis, industry analysts don't envision major management shake-ups.

Karen Shaw Petrou, managing partner of the Washington-based research firm Federal Financial Analytics Inc., said regulators may have lost the political will to demand the heads of some bank CEOs, following the recent capital raising efforts and other signs of improvement in the U.S. economy.

"I don't think they are planning on any changes absent any significant new problems at highly-stressed institutions," she said.

At the same time, replacing a CEO is never an easy task, especially when the industry remains under severe strain and the pool of available, not to mention capable, candidates seems shallow.

That's not to mention the signal regulators risk sending to the markets, which are still remain incredibly sensitive, by kicking out a leading bank CEO.

"It is a matter of not wanting to shake up the system," said Standard & Poor's equity research analyst Stuart Plesser. "It could make things uneasy again."

Banking regulators have generally been averse to publicly calling for changes at the institutions they supervise even though the White House has been willing to make changes in the C-suite in both the Obama and Bush administrations.

Wagoner was ousted by President Obama In March because the administration believed the former GM (GMGMQ) chief did not have a suitable long-term viability plan for the now-bankrupt automaker.

President Bush also showed little reluctance to act when the financial crisis intensified last fall, as top executives at insurer AIG and mortgage buyers Fannie Mae and Freddie Mac were all shown the door once the government stepped in to rescue them.

But Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, suggested that regulators may try to push banks to make changes within the corporate boardroom instead of at the very top of the management ranks.

Some banking analysts contend that the government has already been pulling some strings behind the scenes at banks that have received a large amount of taxpayer support.

Last week, Bank of America's lead director Temple Sloan stepped down amid shareholder criticism over his defense of Lewis' decision to purchase the troubled brokerage firm Merrill Lynch last fall. There have been reports that other BofA directors could soon follow him out the door.

Sloan, who had been on the board since 1996, is not a banking industry veteran. He is the founder of a leading auto parts distributor.

Sloan is far from being the only board member of a major bank who hasn't gotten their hands dirty in the lending business. Many shareholder activists and analysts cite the lack of banking experience for many board members with helping to create the current state of affairs at many ailing banks.

So if any personnel changes are forthcoming, regulators could offer their own slate of candidates or outline a broad set of qualifications they want to see among new big bank board members, Elson said.