Word: stressed
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...rest of the year in finance will probably be dull. Investors know that banks will lose more money. The government claims, probably correctly, that the stress test results and recommendations for banks to add new capital has guarded against an undercapitalization of the system which could cause another crisis...
Federal Reserve chairman Ben Bernanke, speaking via satellite to a bank conference sponsored by the Chicago Federal Reserve Bank, said on Thursday morning that the stress tests "will allow, I hope, for greater confidence in the banks." But even though the stress tests are over, the banks and their investors are not out of the woods...
...biggest issue left unresolved by the stress tests, which concluded that 10 of the 19 top U.S. banks need an additional $75 billion in capital, is how the banks will get de-stressed. Originally, when Treasury Secretary Timothy Geithner announced the tests, he said they would determine how much additional capital banks needed to remain solvent, and the government would then provide that amount to the banks. Now the Treasury is giving the banks that are believed to need additional money, including Bank of America, Citigroup and Wells Fargo, until June 8 to come up with their own plan...
...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 indeed shot higher as investor fear has subsided. But longer term a big issue remains: Investors need to know just what the government's stakes in these banks are worth since that directly affects what the investors' stake is worth. The government says the future stakes it takes in the banks...
...stress tests may do most for depositors, letting them know that their financial institutions are either in good shape or being repaired. That may allow the government to start rolling back some of extra safety nets it has set up over the past year. So even though the stress tests may not be a boon for investors, they are still a positive development...