Today, May 7th, is D-Day for America's largest banks. The Obama administration will release, after the close of Wall Street, the bank stress test results to gauge their stability. There have already been leaks about the bank stress test results, however, though the actual results have not been released.
On Wednesday, seemingly as a result of the leaks, the DJIA climbed 101.63 points, or 1.2%, showing confidence that the overall picture on large banks will not be bad after the bank stress test results are out. On Thursday, however, it appeared investors started to sweat a little, as the DJIA is down more than 50 points at this time.
Yes, it seems reality might be sinking in. After the results of the bank stress tests, what are the next steps? In other words, as we already know some banks (BofA, for example) may require additional funds to survive if toxic assets become too much for it; what will be the fed's actions?
Cam Fine, CEO of the Independent Community Bankers of America, gave that opinion:
“I think when they announced this in February, they did that more to calm the markets. They weren't really thinking about the end game and the exit strategy. And now they have to deal with this, and they're really in a lose-lose situation.”
Is this a lack of forward thinking? That almost never happens in the government or business (insert sarcasm here). After all, we wouldn't be in this toxic asset mess if people had thought ahead, now would we? In any case, shareholders are also very anxiously weiting for the bank stress test to come out after the close of the stock market.
About half of the banks stress-tested, based on leaked reports, need funds in case of a deeper recession. These include huge banks such as Bank of America, Wells Fargo and Citibank. These are among those being told to add tens of billions to their assets as a cushion.
Where will that money come from, and how easy will it be to acquire it? That remains to be seen. Today in a story published by VOA the U.S. Treasury Secretary Timothy Geithner said bank stress test results will ease uncertainty in the banking industry. The Fed is trying to help the private banks to face stronger challenges should they come. The stress test results of the U.S. banks will identify how much those banks need to do to face those though challenges should they come.
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