The Obama administration is considering making public some results of the stress tests being conducted on the country's 19 largest banks, said people familiar with the matter, a move that could help more clearly separate healthy banks from the weaklings.
Until now, the government has tried to treat all banks equally, pouring cash into both strong and struggling institutions to prop up the financial sector. The strategy has provided cover for beleaguered banks, which received funds along with their stronger brethren.
This possible move, combined with first-quarter bank earnings and the push by some financial institutions to raise new capital and repay their bailout funds, could lay the groundwork for a new phase in the financial crisis. Within weeks, the stronger banks could emerge free of government shackles and flush with new funds, with weaker ones still reliant on federal largesse. That would transform how investors and the government view the financial sector.
STRESS, RELIEF: Shown last month, Wells Fargo's John Stumpf, BofA's Kenneth Lewis, US Bancorp's Richard Davis, Morgan Stanley's John Mack, PNC's James Rohr, State Street's Ronald Logue and Citi's Vikram Pandit. Since announcing the stress tests earlier this year, the government hasn't made clear what, if anything, would be disclosed about the assessments. The Treasury originally suggested it would defer to individual banks to disclose results. But some regulators worried about banks selectively leaking information, causing a possible bias against rivals.
The stress tests were designed to build confidence that the nation's largest banks could weather a severe and prolonged economic downturn. Regulators are trying to determine how much assistance banks might need to continue lending in such circumstances. Banks that need more capital will get six months to raise it from private investors or take cash infusions from the government.
It isn't clear precisely what information the government might disclose. It remains possible the data won't be specific to individual banks. But some within the administration believe a certain amount of information needs to be released in order to provide assurance about the validity and rigor of the assessments. In addition, these people also are concerned that the tests won't be able to fulfill their basic function of shoring up confidence unless investors are able to see data for themselves.
Staff at the various regulatory agencies have been discussing the matter for several weeks and are expected to brief top regulators as soon as this week. One possible solution: Aggregating the data provided by the banks so the government could provide a broad snapshot of the banking industry's health without disclosing firm-specific data.
Last month, Comptroller of the Currency John Dugan said "there will be definitely some information that will be provided" once regulators make their decisions. "Exactly what that will be and when it will be provided will come forth later," he said at the time.
Several small banks have already repaid their bailout funds. On Tuesday, Goldman Sachs Group Inc. successfully raised $5 billion in equity aimed at helping it repay $10 billion in Troubled Asset Relief Program, or TARP, capital it received in October. Other large financial institutions don't appear to be keen to tap the equity markets any time soon, but the recent revival in their stock prices has made the concept more appealing.
A senior U.S. Treasury official said the government will accept repayment of rescue funds from any institution whose regulator dubs it healthy enough to operate without federal capital.
The move to stop treating banks equally is sparking concern about the effect on specific institutions seen as weaker than peers. "You can create a run on a bank pretty quickly," said Eugene Ludwig, chief executive of consulting firm Promontory Financial Group and a former Comptroller of the Currency.
Wayne Abernathy, executive vice president of financial institutions policy and regulator affairs at the American Bankers Association, said the government needs to provide information about the results but also protect examination data.
"I don't think they can ignore the appetite they have created for this information," Mr. Abernathy said. Having the government publicize some information would allow policy makers to control the message. "It's what can we say that is meaningful while still protecting the quality of that exam data," he said.
Mr. Ludwig cautioned that any information could give rise to mischief. "Bank exams are confidential for good reason," he said. "Given the kind of confidential information they contain, there is always the possibility of misuse or misinterpretation."
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