What happened
Federal regulators conducting “stress tests” of 19 U.S. banks have reportedly determined that Bank of America needs $34 billion in new capital, the largest shortfall among the tested banks. In all, 10 of the 19 banks are expected to require more capital. The Federal Reserve will officially unveil the results of the stress tests Thursday evening. (Bloomberg)
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Bank of America needs $34 billion? said Felix Salmon in Reuters. Yikes! If BofA needs that much, the collective needs of all the banks must be a “shockingly enormous sum.” Let’s hope the Obama team knows what it’s doing with these stress tests, despite the “ham-fisted” leaking of the results.
The stress tests are already “yielding benefits,” said Binyamin Appelbaum in The Washington Post. BofA’s shares have climbed 129 percent since the tests were launched, and even Citigroup is up 27 percent. But the point isn’t to rescue the banks, it’s to “rescue the economy,” and the 12-week testing period has let the markets “breathe deeply” and the banks race to get stronger.
If the tests show BofA or other banks as weak, that could spark debilitating selloffs, said The Salt Lake Tribune in an editorial. But the Obama team should still “disclose as much as possible” about the health of the banks. The weak ones won’t be allowed to fail, and the strong ones will get stronger with investor confidence, allowing them to lend again—“the goal of federal banking policy.”
