WASHINGTON, (Reuters) – US regulators told top banks yesterday to raise $74.6 billion to build a capital cushion officials hope will restore faith in financial firms and set a course out of the deepest recession in decades.
Within minutes of release of the bank “stress test” results, which showed smaller capital needs than once feared, several of the 10 firms needing capital immediately issued statements detailing how they planned to raise it.
Bank of America Inc <BAC.N>, which accounted for almost half of the total capital shortfall with $33.9 billion to be raised, said it planned to issue $17 billion in common stock, sell assets and take other steps to fill the hole.
“We’re going to be watching carefully to make sure they give us credible plans for raising capital and becoming privately owned again,” Federal Reserve Chairman Ben Bernanke said at a news briefing, referring to the entire group and not just Bank of America.
The examinations — which involved more than 150 regulatory officials poring over the books of the 19 largest firms — effectively drew a line between healthy and weak, and quantified exactly how much those institutions struggling under the weight of souring loans must raise.
US stock index futures edged higher after the test results calmed fears that the government would have to play an even bigger role on Wall Street. Many of the banks themselves are loath to take more government aid for fear of the scrutiny it may bring and tough conditions on executive compensation.
Several of the banks found to be adequately capitalized said they wanted to repay taxpayer money as soon as possible to get out from under the government yoke.
The relatively modest size of the hole discovered by regulators carrying out the tests, which were based on an “adverse” economic scenario, led to both applause from investors who believe the worst is over and skepticism among those who think the examination wasn’t rigorous enough.
“The fears of nationalization or of failure have more or less disappeared, and now what we’re getting is details of how banks are going to fill in their capital deficiencies,” said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.
