Capital-Short Banks Get Month to Offer Plan

Bank holding companies that government stress tests determine need more capital will have one month from Thursday to develop a plan and four months to implement it, federal regulators said in a joint statement late Wednesday.

The Federal Reserve is expected to report results of the government stress tests on the nation's 19 largest banks at 5 p.m. on Thursday, the Fed, Treasury, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said in a joint statement. The tests will determine how much capital each company and the 19 institutions in aggregate need to withstand "losses and loss rates across select categories of loans" under hypothetical worsening conditions in the economy.

The companies determined to need capital will have until June 8 to develop a detailed capital plan and until Nov. 9 to implement the plan.

"A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery," the statement read. "The U.S. government reaffirms its commitment to stand firmly behind the banking system during this period of financial strain to ensure it can perform its key function of providing credit to households and businesses."

The Supervisory Capital Assessment Program will expect banks to have Tier 1 capital "well in excess of the 4% regulatory minimum, and also to have common equity as the dominant element of that Tier 1 capital."

The program will require the companies to accumulate a Tier 1 risk-based capital ratio of at least 6% and a Tier 1 Common risk-based ratio, or tangible common equity ratio, of at least 4% by the end of 2010, under "a more adverse macroeconomic scenario than is currently anticipated."