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Government ‘Stress Tests’ Find Big Banks Need $75 Billion

The U.S. Treasury released stress tests of 19 major banks, finding that they collectively need another $75 billion by November. A financial reporter explains the results.

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  • JUDY WOODRUFF:

    This was the day the U.S. government named names and numbers in the financial industry. Regulators made public the conclusions of bank stress tests.

    NewsHour correspondent Kwame Holman has our lead story report.

  • KWAME HOLMAN:

    The results confirmed reports that several of the nation's largest banks still need capital infusions to ride out the global financial crisis.

  • ERIN BURNETT, CNBC Anchor:

    Seven of the banks reportedly need money. Will their CEOs soon be begging, too, for a job?

  • KWAME HOLMAN:

    The months-long stress tests had been the subject of rampant speculation and frequent disclosures to the press.

  • TV ANCHOR:

    … on those bank stress tests, although a lot of that information has already leaked out.

  • KWAME HOLMAN:

    This morning, via satellite, Federal Reserve Chairman Ben Bernanke told a Chicago conference it was vital to find out what happens if the recession gets even worse.

  • BEN BERNANKE, Federal Reserve Chairman:

    Suppose that the economy performs worse than we currently expect. Suppose that the unemployment rate is higher, that house prices decline more quickly, and, in general, conditions are worse than currently expected. Will banks still be able to have enough capital so that they are both well capitalized and able to lend and support economic recovery? And so that was the way we sized the capital buffer that is needed.

  • KWAME HOLMAN:

    Overall, the testing showed 19 banks scrutinized require less new money than expected, around $75 billion.

    Bank of America, which received $45 billion in government relief under the so-called TARP program, will need an additional $34 billion. Citigroup, which also is a $45 billion recipient of TARP money, will need an additional $5.5 billion in capital.

    San Francisco-based Wells Fargo got $25 billion from taxpayers and is judged to need nearly $14 billion more. The financial arm of General Motors, GMAC, took $5 billion in assistance, but needs more than twice that after the stress test review.

    But several of the largest banks were seen to be in comparatively good health. JPMorgan and Goldman Sachs, which took $25 billion and $10 billion respectively in TARP funds, need no additional capital.

    And American Express, Capital One, and MetLife also are in the clear.

    Last evening, Treasury Secretary Timothy Geithner told PBS's Charlie Rose he sees further government intervention as a last resort and that, overall, the banks are in much better shape than when the financial crisis began.

  • TIMOTHY GEITHNER, Treasury Secretary:

    But this is not a solvency thing. There's very significant cushions in these institutions today, and all Americans should be confident that these institutions are going to be viable institutions going forward.

    This is designed to make sure that the economy will be able to benefit from larger lending capacity going forward in the event we were to face greater uncertainty again about a deeper recession.

    So it's like insurance — again, it's like insurance, precautionary insurance against the risk of a deeper recession.

  • KWAME HOLMAN:

    And today, Geithner rejected criticism the stress testing either was too tough or too easy on the banks. He wrote in the New York Times, it tried to "strike the right balance."

  • TIMOTHY GEITHNER:

    Banks are going to be able to get back to the business of banking.

    BARACK OBAMA, President of the United States: Americans are responding to difficult economic times…

  • KWAME HOLMAN:

    But should worse come to worst, new details on the president's budget today included a further possible government lifeline. Mr. Obama asked for a $250 billion placeholder in next year's federal outlays for financial rescues. That would bring the U.S. government's direct investment in the financial sector to nearly $1 trillion.

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