Mum's The Word On Banks' Stress Tests
The Fed ordered financial institutions to keep the results of their stress tests quiet for fear that the results might spook a stock market that is just beginning to show signs of optimism, reports Bloomberg.
The tests are designed to gauge a company's financial health and ability to withstand more economic turmoil – specifically whether they have enough cash on hand to weather continued unemployment hikes and further plunges in the real estate market.
Investors have already fixed their attention on banks this month, as earnings reports trickle in over the next few weeks. Leaking stress test results during this time could add to market volatility and complicate the government's efforts to "release the results in an orderly fashion," Bloomberg's report states.
"If you allow banks to talk about it, people are just going to assume that the ones that don't comment about it failed," Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, told the news agency.
So far, Wells Fargo, which pleasantly surprised investors Thursday with the announcement of record first-quarter profits, is following the Fed's prescription for quiet.
"We haven't commented on regulatory matters and we won't start now," Atkins told Bloomberg. "We don't comment on the process."
Other major banks, like JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs, are set to release their own earnings reports within two weeks.
The stress tests are key to the Treasury Department's plan to ensure the viability of the U.S. financial markets. Officials will have six months to review the test results to see if further cash infusions, from either private investors or government funds, would be necessary.