Results of the Supervisory Capital Assessment Program, better known as the Stress Tests, were released after markets closed on Thursday. The tests ― a comprehensive measure of how the top 19 banks would perform under various “what-if” scenarios for the economy ― revealed that 10 of the nation’s banks must raise $75 billion over the next six months.
In a statement released with the 37-page summary of results, Federal Reserve Chairman Ben Bernanke said the report “should provide considerable comfort to investors and the public.”
He said all of the firms are solvent, nearly all have enough Tier 1 capital to absorb losses even in the worst hypothetical scenario, and only half of the institutions must restructure their capital base.
“Many of the institutions have already taken actions to bolster their capital buffers and are well-positioned to raise capital from private sources over the next six months,” Bernanke said, adding that the Treasury stands ready to provide extra capital if necessary.
Many of the report’s key details were released on Wednesday afternoon, relieving some investors and allowing U.S. stock markets to soar. On Thursday, however, all major indexes turned south when Bernanke gave a speech endorsing a reformation of regulation and oversight.
The S&P closed Thursday down 1.32% to 907.39; the Dow fell 1.20% to 8409.85; and the Nasdaq suffered the biggest blow, falling 2.44% to 1716.24.
Citigroup, whose equity needs are in excess of $50 billion, must raise $5.5 billion in new capital. The institution has already bolstered its balance sheet by converting preferred shares into ordinary stock.
The institution most in need of fresh capital, Bank of America, must raise $34 billion. Like Citi, BofA could convert some of their rescue funds into ordinary stock. In addition, the bank has been in talks with China Construction Bank to sell an $8 billion stake in the company.
Wells Fargo needs to raise $13.7 billion. GMAC must raise $11.5 billion.
Banks that are not required to raise capital include Goldman Sachs, JPMorgan, American Express, and State Street.
Wells Fargo and Morgan Stanley each announced stock offerings after markets closed but before the test results were published. Wells Fargo will offer $6 billion in new stock, while Morgan will sell $2 billion.
Plans to raise capital must be submitted to regulators by June 8.