Fed Releases Stress Test Guidelines
Next Friday is going to be a big day for our bailout database. That's when the Treasury will release the results of its "stress tests" on the nation's 19 biggest banks. Regulators will decide whether the banks need to raise more capital to survive a severe recession, and then the banks will have three options: raise the money privately, take more bailout money, or convert the taxpayer money that's already invested in the bank from preferred stock to common stock. Earlier, we provided a list of the banks undergoing the stress tests.
Today, as a kind of preview of next week's revelation, the Federal Reserve released the general guidelines regulators used in conducting the tests. It includes the technical considerations involved, but provides no indication of the results, either of specific institutions or generally. The Fed does warn, however, that too much shouldn't be made of a bank needing extra capital: It's just an extra buffer to last the winter, the guidelines say. We'll see.
As big banks return their TARP money, Fannie Mae and Freddie Mac continue to be a drain.
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