All Blog Posts from Econwatch

The Congressionally-appointed panel overseeing federal bailout funds wants to see U.S. banks undergo another set of stress tests that account for even worse economic conditions, chairwoman Elizabeth Warren told CNBC Tuesday.

Warren, a Harvard University professor, said that the country had “already blown past the worst-case scenario on unemployment.”

The stress tests, whose results were made public last month, were designed to gauge how much additional capital a bank would need to weather further deterioration in the economy.

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Wall Street finished the week with another champagne-popping rally as investment managers exhaled after the government published the results of its stress tests on the nation's major banks.

The healing process has begun, Quincy Krosby, the chief investment strategist at Hartford Investments told the New York Times. "You're seeing more conviction buying the banks, where investors are culling the weak from the strong and going into the strong names. The strong will get stronger and the weak will get weaker."

But the headlines buried the real lede.

On the face of it, Wall Street's rally came in response to the better-than-expected news that 10 of the banks must raise $75 billion in new capital. Turns out, however, that the banks had a significant hand in shaping the outcome of their own government-administered exams.

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The Federal Reserve on Thursday revealed the results of its bank "stress tests," showing that 10 of the nation's 19 largest banks would need more capital to withstand losses and meet the credit needs of their customers in the event of a more severe recession.

Officially know as the Supervisory Capital Assessment Program (SCAP), the stress tests involved a comprehensive assessment by the Federal Reserve and other bank supervisors of the capital held by the 19 largest U.S. bank holding companies. The Fed decided to make the results of the stress test public to restore confidence in these financial institutions.

The following chart shows the additional capital buffer the Fed suggests each bank needs. The 10 banks in need of additional capital have until June 8 to come up with a detailed plan for putting that capital buffer in place, and they must implement the plan by early November.

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With the government set to release the results of bank stress tests, Congress' bailout watchdog says it's a "real moment for Treasury."

"All the chips are on the table," Elizabeth Warren, chair of the congressional oversight panel for TARP funds, said on CBS' The Early Show Thursday.

While the tests are designed to evaluate the financial health of the country's 19 largest banks, they also serve as a test of the government's ability to manage the credit crisis that has choked economic growth in the nation.

Warren noted the changes in the Treasury's approach from October, when the original $350 billion cash infusion into banks implemented by Bush Treasury Secretary Henry Paulson received a "lot of backlash." Timothy Geithner, Treasury's current head, placed more restrictions on banks receiving federal aid, but the stress tests will be a pivotal moment for the Obama administration.

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The Treasury Department has reviewed Bank of America's financial health and concluded the troubled institutions needs nearly $34 billion, The New York Times reports.

Should the bank be unable to raise the $33.9 billion, it would have to rely on government aid, which is roughly $45 billion from the Troubled Asset Relief Program, a bank executive told the newspaper.

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Government stress tests for the banking industry aren't supposed to be made public until Thursday, but that hasn't stopped a steady stream of reported results from flowing in.

The Federal Reserve plans to release those results to bank executives Tuesday and they may show about 10 of the 19 largest banks in the country need additional capital to withstand a hypothetically worsening recession, according to a Bloomberg report.

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Citigroup may look to private investors to pump some more capital into the bank in an attempt to avoid more government control, according to a Bloomberg report Monday.

Citi, which is awaiting the release of its government stress test results this week, has been told by regulators that it won't need anymore taxpayer money, Bloomberg sources said. But the government is now looking at how much of their preferred stock, which they received after giving the bank a $52 billion cash infusion, will be converted to common shares. The government could convert up to $25 billion into common stock, which would give it a 36 percent ownership stake in the company.

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CBS News has learned that regulators now expect to release the results of the bank stress tests to the public on the afternoon of May 7th. It will probably happen after the closing bell.

The results where scheduled to have been released on May 4th.

Guy Campanile is a CBS Evening News business producer.

Bank of America and Citigroup, may need additional cash infusions based on the results of their government-imposed stress tests, according to a Wall Street Journal report Tuesday.

Federal regulators have told the banks that preliminary findings indicate they might need to raise additional capital to buffer their businesses from further losses. Bank of America alone might require billions more, according to sources familiar with the bank.

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A federal regulatory official tells CBS News that the parameters and results of the “stress tests” of the 19 major banks will be released over the next two weeks.

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