Bank Stress Tests Lift Cloud Over Economy

Washington, DC, May 8, 2009--Government stress tests of the nation's biggest banks have helped lift a cloud of uncertainty that has hung over the economy.

The tests showed nine of the 19 biggest banks have enough capital to withstand a deeper recession. Ten must raise a total of $75 billion in new capital to withstand possible future losses.

"The publication of the stress tests simply cleared the air of uncertainty," said Allen Sinai, chief global economist at Decision Economics. "The results were not scary at all."

He said it will take a long time for the banks to resume normal lending. But the test results didn't alter his prediction that economy is headed for a recovery in October or November.

The stress tests have been criticized as a confidence-building exercise whose relatively rosy outcome was inevitable. But the information, which leaked out all week, was enough to cheer investors. They pushed bank stocks higher Wednesday, and rallied again in after-hours trading late Thursday once the results had been released.

Among the 10 banks that need to raise more capital, Bank of America Corp. needs by far the most -- $33.9 billion. Wells Fargo & Co. needs $13.7 billion, GMAC LLC $11.5 billion, Citigroup Inc. $5.5 billion and Morgan Stanley $1.8 billion.

The five other firms found to need more of a capital cushion are all regional banks -- Regions Financial Corp. of Birmingham, Ala.; SunTrust Banks Inc. of Atlanta; KeyCorp of Cleveland; Fifth Third Bancorp of Cincinnati; and PNC Financial Services Group Inc. of Pittsburgh.

Describing the purpose of the tests, Federal Reserve Chairman Ben Bernanke said at a news conference, "This is to make sure banks have enough capital to offset the losses we know are coming in the next couple of years."