The US Federal Reserve and other regulators conducting stress tests on the 19 biggest US banks will disclose how they carried out the examinations before any results are released, people familiar with the process said.
The regulators plan to publish a paper on their methods within the next two weeks, ahead of the release of results by early May, in an effort to bolster credibility in the process.
“The more markers or sign posts you can put on the path, the more helpful it will be,” said R Scott Siefers, managing director at Sandler O’Neill Partners LP, a New York research firm specialising in bank stocks. “There are a lot of questions in investors’ minds.”
Procedures for releasing information on specific firms, which will expose weaker banks and boost confidence in stronger ones, are still under discussion. Bank regulators may also encourage each of the 19 firms to release an individual statement on the results of its own stress test, according to another person familiar with the matter.
The US Fed, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision are using the tests to determine whether the top 19 banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining.
The US Fed, the nation’s primary regulator of bank holding companies, is leading the analysis on how much capital banks might need. Fed Chairman Ben S Bernanke and the US Fed Board met yesterday to discuss the government’s bank-support programme. While the tests are a central element of the administration’s financial-industry rescue, top US Treasury officials aren’t participating in the reviews in order to maintain the independence of the regulators. The US Treasury also won’t be a contributor to the white paper.
