Analysts wary as US banks raise cash
By Daniel Wagner and Stephen Manning |
November 11, 2009, Wednesday
|
Print Edition
Print Edition
ALL but one of the 19 largest American banks have raised the extra capital cushion regulators said they would need to withstand a deeper recession.
United States Treasury Secretary Timothy Geithner described this as a sign of how much the financial system had improved since the crisis began.
Still, the banks' capital needs were based on unrealistic economic projections. Some have proved too rosy, others too grim.
For example, "stress tests" envisioned unemployment reaching 8.9 percent this year; it stands at 10.2 percent.
On the other hand, the tests assumed housing prices would fall 22 percent this year in a worst-case scenario.
Instead, they fell 5.5 percent in the first half of the year and have risen for the past three months.
Early this year, the Obama administration subjected the 19 largest banks to the "stress tests." The goal was to boost confidence in the financial sector by showing how strong banks' balance sheets were.
Regulators used a series of economic projections to see if banks could withstand the losses they would suffer in case of a worse recession.
The recession diverged far from the economic projections used. Analysts said their results revealed little about what troubles the banks face.
Some analysts said certain banks faced problems stress-test buffers may not solve.
"We're already at record numbers on losses, and those numbers are rising," said Christopher Whalen of Institutional Risk Analytics.
United States Treasury Secretary Timothy Geithner described this as a sign of how much the financial system had improved since the crisis began.
Still, the banks' capital needs were based on unrealistic economic projections. Some have proved too rosy, others too grim.
For example, "stress tests" envisioned unemployment reaching 8.9 percent this year; it stands at 10.2 percent.
On the other hand, the tests assumed housing prices would fall 22 percent this year in a worst-case scenario.
Instead, they fell 5.5 percent in the first half of the year and have risen for the past three months.
Early this year, the Obama administration subjected the 19 largest banks to the "stress tests." The goal was to boost confidence in the financial sector by showing how strong banks' balance sheets were.
Regulators used a series of economic projections to see if banks could withstand the losses they would suffer in case of a worse recession.
The recession diverged far from the economic projections used. Analysts said their results revealed little about what troubles the banks face.
Some analysts said certain banks faced problems stress-test buffers may not solve.
"We're already at record numbers on losses, and those numbers are rising," said Christopher Whalen of Institutional Risk Analytics.
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