At least seven of the largest banks in the U.S. need at least $65 billion in capital to protect them should the economy worsen, according to the results of the Federal Reserve’s stress test of the nation’s 19 largest financial institutions as reported by The Wall Street Journal.
Six other banks, including J.P. Morgan Chase, Goldman Sachs Group, MetLife, American Express, Bank of New York Mellon, and Capital One Financial, passed the test and will not be told to raise additional capital.
Bank of America was at the bottom of the test’s results, with regulators informing the company it must find a way to handle their $34 billion capital shortfall. Also included on the list of banks in need of more capital were Wells Fargo, GMAC, Citigroup, Morgan Stanley, Regions Financial, and State Street. In total, these banks need to generate at least $65 billion in capital to continue lending if the economy worsens in the upcoming months.
The test examined the country’s 19 largest banks, but the results for the remaining six banks have not been released yet. Analysts and investors expect many of them to also be troubled. Further results will be released after the close of trading Thursday and are expected to include more information about the industry’s long-term health.
Banks that need more capital will be required to develop a plan by June 8, and that plan must be implemented by Nov. 9. They also must review their management to ensure regulators that the leadership has “sufficient expertise and ability” to handle the current situation.
Stronger banks will be permitted to repay funds that were borrowed under the Troubled Asset Relief Program (TARP), which would also make them exempt from TARP’s restrictions on compensation and dividend payments. Administration officials said they believe many banks will be able to add to their capital without the aid of the remaining $109.6 billion in TARP funds.