Word: geithners
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...bank stress tests are considered one of the key components of Treasury Secretary Tim Geithner and President Barack Obama's plan to fix the financial system. They are designed to determine which banks would fail and which would survive if the economy worsens, as some economists expect. But when they were announced in mid-February it was not clear what the government would do with the information collected. Would it shut down a troubled bank...
...This tension over pricing helps explain the leaked stories on Wednesday announcing that Treasury Secretary Timothy Geithner will make public the results of the banks' "stress tests" next month. The tests started out in March as a gauge of banks' ability to handle a worst-case economic downturn; now they've become a weapon for Obama and Geithner to force the banks to clean up their acts, officials say. "It gives [Obama and Geithner] leverage to make large institutions do things they otherwise wouldn't do," says a senior government official involved in the tests...
...banks' resistance may be the biggest hurdle Geithner faces in his plans to rebuild the financial sector. At the height of the crisis over the winter, there were neither buyers nor sellers for the toxic assets. Saddled with the assets on their balance sheets, the banks sharply curtailed lending, threatening to throw the economy into a tailspin. The Bush and Obama Administrations poured money into the banks to allow them to restart some lending, but the toxic assets remained on the banks' books. (See five lessons from the AIG-bonus blowup...
...Financial Accounting Standards Board to loosen accounting rules so that the toxic assets' book value could be marked up to buttress the banks' balance sheets - conveniently raising the assets' potential sales price at the same time. And in late March, days before the meeting with the bank CEOs, Geithner and Obama unveiled the government subsidies for buyers, drawing big names like Blackstone and Pimco into the market to purchase the assets from the banks and resell them...
...Obama and Geithner may not be completely out of the woods even if they do force banks to sell their toxic assets. Some banks may be so deeply in debt that even the proceeds from the sales won't be enough to fill their capital needs. In that case, the stress tests may prove useful in another way. Geithner has only about $35 billion of TARP money left to plug the remaining holes for the 19 largest banks. After that, he has to go back to Congress for more money - at which point he'll need the stress tests...