Bank Regulators are setting out new guidelines for the 19 banks undergoing "stress tests" First of all, they have established four categories for sorting out where the various banks fall in their overall assessments:
- Category 1: Banks that must raise additional capital to protect themselves against a deeper recession.
- Category 2: Banks that need more equity but not necessarily additional capital.
- Category 3: Banks that have enough capital.
- Category 4: Banks that have surplus capital.
Then Regulators have established a new rule for repayment of TARP monies. Banks that want to repay their TARP loans must demonstrate that they can raise capital before repayment of their loans.
Two banks that fall into category 1 are Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C). Regulators are about to require B of A to raise about $34 billion dollars and Citigroup would need to raise $10 billion and maybe just $6 billion. It was heard on the street that Citigroup plans to raise their capital through common equity, thereby reducing the need for additional capital. This would involve converting preferred shares into common stock.
Two banks, Goldman Sachs Group Inc. (NYSE: GS) and JPMorgan Chase Inc. (NYSE: JPM) are expected to pass their "stress tests" without raising additional capital.
Do you agree that this system will work?
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Reader Comments (Page 1 of 1)
5-06-2009 @ 4:04PM
Iridium said...
Considering Goldman and JP Morgan weren't even banks until this year it would be a big surprise if they failed the stress test.
Why are they banks again?