Fallout: The Financial Crisis

Bank stress test finds large cash holes

Steve Henn Apr 28, 2009
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Fallout: The Financial Crisis

Bank stress test finds large cash holes

Steve Henn Apr 28, 2009
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TEXT OF STORY

Steve Chiotakis: Remember those bank stress tests the White House has been conducting? The Wall Street Journal reports they’re apparently starting to show some inadequacies in the system. Namely, two of the nation’s biggest banks that may need to raise more capital. Marketplace’s Steve Henn reports.


Steve Henn: Government regulators have reportedly told Bank of America and CitiGroup they’ll need to raise more money. But the Journal says both banks are objecting to those preliminary findings. They’re expected to respond to the government with detailed rebuttals.

But you have to wonder: If these two banks had passed the Fed’s stress test with flying colors would anyone have taken the results seriously?

Edward Hadas1: No. These tests have to be tough enough to show that these large banks are indeed in need of extra capitol.

Edward Hadas, an economics editor at Breaking Views in London, says that much has been obvious to almost everyone for months.

Hadas1: The estimates from the Macro economists of how big the losses in the financial system United States and around the word are just too big to suggest that these banks are really strong enough to survive without more money.

Hadas say other large banks probably will be forced to raise more cash too. But it’s unclear if any will come from private investors. The likeliest scenario is that the government will end up taking a larger stake in troubled banks.

In Washington, I’m Steve Henn for Marketplace.

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