Just when you thought the stress-test mayhem was over, it's come back to bite the big banks in their balance sheets.
Federal Reserve officials are now demanding banks use a maximum of 5 percent of their future revenue to satisfy the billions they were asked to come up with in May, according to The Wall Street Journal. Previously, some banks, such as Bank of America, were planning on using up to 20 percent of future revenue to satisfy the demands.
The percentage change in what revenue banks can apportion to account for their required capital reserves makes a mighty change in what they must raise. Previously, it was estimated that up to $215.3 billion in future revenue could be used to satisfy the $74.6 billion that 10 banks were asked to raise. Now the banks will be forced to go back to the task of good old capital-raising.
Worst hit is Bank of America, which can only use $1.7 billion of the $7 billion in future revenue it hoped to in order to satisfy regulators that it's well-positioned to handle any significant economic downturns.
That will come as a real setback to the Charlotte-based lender, which has just announced that it raised $26 billion of the required $33.9 billion from an offering of 1.25 million shares. Probably the most interesting case will be Citigroup, which was required to raise $10 billion but claimed that the money wasn't necessary.
The U.S. banks can at least take heart in the pressures their British siblings are being placed under. The U.K. stress tests assume a scenario where the country falls into the worst recession in 60 years, with a drop in GDP of over 6 percent, and negative growth right through next year.
One wonders whether the French are not deliberately playing up old rivalries with the Americans and the Brits, too! Wednesday, European Central Bank board member Christian Noyer announced that all French banks would be capable of passing the U.S. stress tests.
While Noyer was in favor of publishing the methodology of the European stress tests, it wouldn't make much sense to release results of the tests for individual banks, he added.
But given the diabolical state of the German banking system right now, that claim seems about as dubious as Bank of America's previous proclamations that it would pay back TARP funds early. The reality is that just as it looked as if the sea had calmed, it now seems as if it's going to be stormy for everyone out there in the coming months.