Big banks told to keep the lid on ‘stress tests’
The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter told Bloomberg.
The Federal Reserve wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month, Bloomberg said.
“If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Va.
Regulators are using the tests to determine whether the 19 biggest 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 tests are a linchpin of the plan Treasury Secretary Timothy Geithner announced in February to bolster confidence in the nation’s banks and restore financial-market stability.
Geithner has likened the stress tests to those used by doctors to evaluate a patient’s health. They’re designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets. The Federal Reserve is overseeing the administration of the tests.