Word: bankses
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U.S. authorities have just released the results of the stress tests that they ran on the top 19 U.S. banks. This group holds about two-thirds of the total assets in the U.S. banking system. The health of those balance sheets has profound implications for the severity and length of...
So what can be taken away from the stress-tests exercise? That even lenient stress tests show that several large banks still need additional capital. Beyond that, there are more questions: Will the capital-requirement prescription unveiled by the stress tests be enough? And how will banks prop up their...
The answer to the first question is no. Recapitalization needs will likely exceed what the current stress tests suggest since macroeconomic conditions are bound to be worse than the consensus anticipates, making the adverse scenario of the stress tests look mild. At this point in time, banks are still facing...
Answering the second question - repairing bank balance sheets - is neither simple nor clear-cut. What is clear is that the capital needed will not come (entirely) from private hands. Banks and policymakers will essentially have a few different options: banks can issue more common stock; policymakers can push more conversions...
Of course, the government is hoping that the stress tests will be the beginning of the end of the bank crisis because they will raise confidence in these institutions and even give bank stocks a boost. As news of the results has trickled out in recent days, bank stocks have...