February 25th, 2009
04:00 PM ET
6 years ago

Treasury unveils 'stress test' for banks

Timothy Geithner is Obama's Treasury Secretary.
Timothy Geithner is Obama's Treasury Secretary.

NEW YORK (CNNMoney.com) - The Obama administration unveiled plans aimed at assessing the health of the nation's leading lenders Wednesday, particularly banks' ability to withstand more dire economic conditions.

The so-called "stress test" program, which was first hinted at earlier this month when the White House rolled out its financial recovery plan, would require major banks like Citigroup, Bank of America and JPMorgan Chase to estimate firmwide losses for the next two years and their ability to absorb such losses.

The program would require financial institutions to offer loss projections across their entire loan and securities portfolios, using consensus economic expectations and a "more adverse" scenario in which unemployment climbs above 10% and home prices decline another 20%.
The hope is that the tests, which will focus on banks with at least $100 billion in assets, would help regulators identify which banks may require additional government support.

Regulators said they hope to complete their examinations as quickly as possible, but all determinations would be made no later than the end of April.

Shares of struggling financial giants, including Bank of America and Citigroup, remained lower following the news. Other large banks were also lower, including Wells Fargo, which declined 2%.

Many big banks have managed to eke out gains this week as top administration officials downplayed fears that the government may have to step in and take control of the country's largest financial institutions.


Filed under: President Obama
soundoff (15 Responses)
  1. Big Ed

    Sounds like a winner to me!

    February 25, 2009 04:34 pm at 4:34 pm |
  2. Finding my happy place

    What about a stress test for the rest of us?

    February 25, 2009 04:35 pm at 4:35 pm |
  3. yuri

    Banks, after the prescribed stress test, are expected to bounce back and belieavably bail themselves out. If they still misbehave, they shoud undergo either a radical surgery or a "behavior transplant".

    February 25, 2009 04:36 pm at 4:36 pm |
  4. Sniffit

    Honestly, it's a great idea, and one would think that if these institutions are at all sophisticated in how they do business and plan their activities (other than the sophistry involved in hiding that they are ripping everyone off all the time), they'd already have done this sort of analysis. Complying with this request shoudl be as simple as handing over research they already knew enough to conduct documents they already knew enough to create. Can't wait to hear what their excuse is when they oppose complying (or the GOP does their whining for them).

    February 25, 2009 04:43 pm at 4:43 pm |
  5. Mike

    Since these banks are in private enterprise, it is simply none of BO's business. Amazing individual, our BO !

    February 25, 2009 04:47 pm at 4:47 pm |
  6. Purple Alaska

    Timmy G. certainly doesn't look too sure of himself there...and by no means does he illicit confidence.... Please tell me he does in fact know what he's doing ~ otherwise, he belongs in Alaska. Just sayin'...

    February 25, 2009 04:50 pm at 4:50 pm |
  7. shucks

    Maybe if this guy smiles once in awhile we all would feel a little bit more comfortable with him.

    February 25, 2009 04:52 pm at 4:52 pm |
  8. Frost/Tennessee

    it's not show me the money anymore

    it's show me where you spent the money...

    February 25, 2009 04:53 pm at 4:53 pm |
  9. Lesley

    It seems that threatening banks with nationalization forces them to snap to attention. Some major reorganization within the banks themselves could I'm sure avoid further decline and the expectation of taxpayer assistance, although I think nationalization of the largest offenders would be a good thing.

    February 25, 2009 04:54 pm at 4:54 pm |
  10. Simmy

    Do it Mr. Treas. Sec. I have confidence in you!

    February 25, 2009 04:59 pm at 4:59 pm |
  11. CJ in FL

    Good gravy, will these people PLEASE go on vacation and stop trying to help! Everytime the Chosen One and his Dream Team speak, things get worse.

    And to think...MILLIONS of voters put this administration in place. I guess that's proof-positive of our failing school system.

    February 25, 2009 04:59 pm at 4:59 pm |
  12. abc

    before end of April? that's too long, plus can we trust any of these corporations anymore? i hope Geithner will move at a faster pace because this issue involves all standing businesses and will cause more to bankrupt with job loss if credit lending doesn't smooth out.
    a back note: technically the TARP money banks have received are federal money, therefore, they are partial-nationalized, except the wording has been placed. so why do people get all work up about nationalizing the banks vs. TARP money for the bank? either way, federal government is/will be involve with bank activities to a reasonable extend. if federal government doesn't save these banks, who will?
    i don't believe this administration will interfer with the capitalist aspect of the banks because interference will further damage our current economy, don't think our president wants that. they need to, however, have oversight, which means, some involvement to assure the TARP are intelligently spent.
    having treasury secretary explaining in simple terms will help main street to better understand the plan and less anti feelins.

    February 25, 2009 05:01 pm at 5:01 pm |
  13. abc

    before end of April? that's too long, plus can we trust any of these corporations anymore? i hope Geithner will move at a faster pace because this issue involves all standing businesses and will cause more to bankrupt with job loss if credit lending doesn't smooth out.
    a back note: technically the TARP money banks have received are federal money, therefore, they are partial-nationalized, except the wording has been placed. so why do people get all work up about nationalizing the banks vs. TARP money for the bank? either way, federal government is/will be involve with bank activities to a reasonable extend. if federal government doesn't save these banks, who will? having treasury secretary explaining in simple terms will help main street to better understand the plan and less anti feelings.

    i don't believe this administration will interfer with the capitalist aspect of the banks because interference will further damage our current economy, don't think our president wants that. they need to, however, have oversight, which means, some involvement to assure the TARP are intelligently spent.

    February 25, 2009 05:02 pm at 5:02 pm |
  14. Lesley

    The banks should be threatened with nationalization, not more taxpayer assistance, if they don't shape up. With the prospect of more government assistance, it's ridiculous to think that banks will all of a sudden become profitable. Look what happened with the first round of tarp money. The only stress testing going on is with the taxpayers who face another forced helping hand to bad business management.

    February 25, 2009 05:02 pm at 5:02 pm |
  15. Lester from Huntsville, Alabama

    The economic crisis started with the housing foreclosure crisis or at least that's what I've been able to assertain from all the pondits and economic advisors these past few months. I believe it should end there aswell. So many people complain about the state of our national (now global) financial markets without putting forth any real ideas about how to fix it. This leads only to despair. I have a real idea that I hope finds its way up to President Obama and maybe he will consider it as a viable option. You have all heard of food stamps....where recipients have to qualify for the aid and it can only be spent on food. What if you had "Mortgage Stamps" with a 5 year moratorium to keep it from becoming a perpetual government program. The people would have to qualify for the aid and could get it only if they are in foreclosure already or about to go into it. The money would go directly to the core of the problem. It would not be handed out to top company executives with the danger of being mismanaged but would find its way directly into the hands of those that need it. The banks would still benefit because they would get the government back "stamps" from the people and thus help bring an end to many of the toxic assets they now have. This would also help the people affected mostly by these harsh economic times stay in there homes. Its a win win. This would stop us from having to invest 700,000,000,000 here and 800,000,000,000 there. This would keep the banks from using the foreclosure crisis as an excuse to get kickbacks to offset the bad risks and investsments people at the top have made. This should have been done from the beginning and it would have only cost a fraction of what has already been spent and we would be well on our way to digging ourselves out of this crisis. HUD could have been delegated authority to administer this aid thus utilizing an existing structure limiting bureaucracy. Please pass this idea on to President Obama and lets help our President save the world.

    February 25, 2009 05:11 pm at 5:11 pm |