Does Anyone feel like Bailing

[classicman]

Meltdown 101: How do bank 'stress tests' work?

WASHINGTON – After weeks of speculation, regulators led by the Federal Reserve are telling banks how they fared in the "stress tests" at the center of the Obama administration's financial rescue plan.

Markets rallied and investors breathed a little easier Friday after a Fed news release on the methods underlying the stress tests. But the white paper, which one former bank examiner for the Fed called "not for mass consumption," left lay people wondering what it all means.

Here are a few questions and answers about the stress test's methods and the next steps for shoring up the financial system.

Q: What is this "stress test"?

A: The "stress test" is actually two tests measuring how much value banks' assets — loans it's made along with various other investments — would lose over the next two years under different economic scenarios.

The first scenario was based on predictions about the current recession. It assumed unemployment will reach 8.8 percent in 2010 and house prices will decline by 14 percent this year. The second scenario was for a worse-than-expected downturn. It said unemployment will reach 10.3 percent in 2010 and house prices will drop by 22 percent this year.

After testing banks' assets to see how much value they could lose, officials compared the losses to the banks' capital cushions — basically, the money they've got in reserve — to see if the banks could survive a bad recession.

Q: Who participated?

A: The tests were run on 19 large bank holding companies, including an insurer, an auto finance company, a credit card company and banks ranging from massive Wall Street houses like Citigroup to regional banks like KeyCorp and PNC Financial Services. The banks all have $100 billion in assets, and together hold half the loans in the U.S. banking system and two-thirds of the assets, according to the Fed.

The tests were performed by the banks' regulators, including the Federal Reserve banks, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

In case you're curious, here's a full list of the Big 19: JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley, MetLife Inc., PNC Financial Services Group Inc., U.S. Bancorp, Bank of New York Mellon Corp., GMAC LLC, SunTrust Banks Inc., State Street Corp., Capital One Financial Corp., BB&T Corp., Regions Financial Corp., American Express Co., Fifth Third Bancorp and KeyCorp.

Q: What did the regulators find out?

Nice article in laymans terms of what it is and whatnot.

[tw]

So many have already criticized this stress test. Not one critic knew what it was - at all - until last Friday (24 April 2009). And still, little is known.

We do know this. A stress test has already caused banks to reassess their financial stability. Anybody who was not doing that most certainly took a second and third look. Some undiscovered new problem would be employment suicide for the bank's management. A good thing considering how widespread their denials were in those big banks.

[TheMercenary]

Good stuff Classic.

[sugarpop]

It says this...

But the truth is, we just don't know. Larger credit problems or a severe downturn still could threaten these banks, especially regional banks that own a lot of risky mortgages. If the banks go down, the government may have to spend more money forcing them to merge — and that could set off a whole new cycle of uncertainty.

Q: Does that mean we're staying on the bailout train?

A: For the foreseeable future. Regulators have decided these banks are "too big to fail." In other words, their failures could wreak havoc on the financial system, like what happened last fall when Lehman Bros. declared bankruptcy. By all indications, the Fed is ready to do whatever it takes to make sure that doesn't happen again.

So let me get this straight, these banks are too big to fail, but if one or more is unable to weather the economy, they will have to merge with other big banks too big to fail? Aren't we exacerbating the problem? Shouldn't they broken down into smaller banks instead?

Geez, the way smart people think sometimes is beyond my reasoning.

[classicman]

apparently so.

[tw]

Originally Posted by sugarpop

So let me get this straight, these banks are too big to fail, but if one or more is unable to weather the economy, they will have to merge with other big banks too big to fail? Aren't we exacerbating the problem? Shouldn't they broken down into smaller banks instead?

A common believe is that Citigroup will eventually be broken up. But now is not the time to be doing these reforms. We have been told we will be living with this problem for ten years. Exactly. The banks are being preserved as institutions to serve other parts of the economy. That is the short term solution. Long term discussions are about resizing banks so that they are not too large to fail AND to make their operations more transparent.

Among other long term solutions - what hedge fund do must move to regulated markets. No more $trillion tied up on secret deals.

And, of course, a fundamental statement by Obama on 14 Apr. Financial companies are there to serve the economy; not for profits. In short, banks must now do what any company is required to do - provide products and services. That should be part of the many changes in the next ten years.

[classicman]

Originally Posted by tw

And, of course, a fundamental statement by Obama on 14 Apr. Financial companies are there to serve the economy; not for profits.

ORLY?

[TheMercenary]

Imagine this:

Bank of America, Citigroup, GMAC Need More Capital

May 6 (Bloomberg) -- Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and GMAC LLC are among the companies judged to need additional capital according to results of regulators’ stress tests on the 19 largest U.S. banks.

Bank of America has the biggest shortfall, at $34 billion, according to people familiar with the matter. Citigroup’s requirement for deeper reserves to offset potential losses over the coming two years is about $5 billion, people with knowledge of that bank’s results said. Wells Fargo requires about $15 billion, while GMAC’s need is $11.5 billion, one person said.

Morgan Stanley may need between $1 billion and $2 billion, according to people familiar with the matter. Earlier today, Bloomberg News reported that Morgan Stanley needed no new capital, citing a person familiar with the matter. Any capital requirement would result from Morgan Stanley’s plans to pay $2.7 billion to take control of Citigroup’s Smith Barney brokerage venture, one of the people said.

The Federal Reserve and other regulators said today that banks that have to bolster their capital will have until June 8 to develop a plan. Goldman Sachs Group Inc., MetLife Inc., JPMorgan Chase & Co., Bank of New York Mellon Corp., American Express Co., BB&T Corp. and Capital One Financial Corp. were deemed not to need additional funds, the results show.

http://www.bloomberg.com/apps/news?p...efer=worldwide

Who'd a thunk it?

[classicman]

6 life insurers qualify for bailout money

WASHINGTON (CNN) -- Six life insurance companies have qualified to receive billions of dollars in bailout money under the government's Troubled Asset Relief Program, according to the U.S. Treasury Department.
Allstate is one of six life insurance companies who are qualified to receive TARP money.
Treasury Department spokesman Andrew Williams said Allstate, Ameriprise Financial, Hartford Financial Services Group Inc., Lincoln National Corp., Principal Financial and Prudential Financial Inc. have qualified for TARP money.

"These life insurers met the requirements for the Capital Purchase Program because of their bank holding company status and each applied for CPP capital investments by the deadline of November 14, 2008," Williams said.

Last year, the Office of Thrift Supervision approved applications from Hartford and Lincoln to become bank holding companies, because of their planned bank purchases.

Philadelphia, Pennsylvania-based Lincoln is buying Newton County Loan & Savings FSB in Goodland, Indiana. Hartford, based in Hartford, Connecticut, is buying Federal Trust Bank in Sanford, Florida.

That last part makes me wonder if there is any benefit to these companies buying these banks to get TARP money. Anyone know?

[Queen of the Ryche]

My employer said no, thanks:

http://www.usatoday.com/money/indust...ompanies_N.htm

[TheMercenary]

Originally Posted by Queen of the Ryche

My employer said no, thanks:

http://www.usatoday.com/money/indust...ompanies_N.htm

Sounds like a bunch of folks are getting on about their scheme. And I thank the Gods for it. We don't need more gobberment control.

[xoxoxoBruce]

Scheme? You mean attaching conditions to the money, instead of leaving a self serve barrel on the porch?

Good, make it as distasteful and unpleasant as possible, so they only stick their hand out as a last resort. Back during the S&L bailouts and the early part of this one, billions were handed out with no accountability, We got a few peeks at what they did with that money.

[TheMercenary]

Certainly. But it needs to be balanced against corps that maybe really need it and the strong arm tactics of the gobberment. Obviously nothing is for free, and it shouldn't be, but there is a balance that is not served by the gobberment in control of private enterprise. If that is the only choice left I say let them fail or file for bankruptcy and let the chips fall where they may.

[xoxoxoBruce]

That's the recipients choice. If they want their asses saved they get chaperoned, to make sure they are not just pissing down the same hole, until they get their shit together and pay back the money. Then they are free to go forth and sin no more.

[TheMercenary]

I still prefer death of the company over control by the gobberment.