Banks asked to keep quiet on stress tests

WASHINGTON Fri Apr 10, 2009 9:38am EDT

President Barack Obama speaks during a meeting with homeowners and members of his economic team about the impact of historically low interest rates at the White House in Washington April 9, 2009. At left is Treasury Secretary Tim Geithner. REUTERS/Kevin Lamarque

President Barack Obama speaks during a meeting with homeowners and members of his economic team about the impact of historically low interest rates at the White House in Washington April 9, 2009. At left is Treasury Secretary Tim Geithner.

Credit: Reuters/Kevin Lamarque

WASHINGTON (Reuters) - The U.S. Treasury Department is asking banks not to mention the regulatory "stress tests" as part of their first-quarter earnings results, according to a source familiar with government discussions.

Many of the top 19 U.S. banks who are undergoing regulatory stress tests have already completed internal versions of the examinations, which are designed to determine their capital needs under more adverse economic conditions.

However, the banks do not yet know the results of the government's version of the assessment, the source said.

U.S. President Barack Obama is meeting on Friday with top financial regulators to discuss the stress tests, the results of which are anxiously anticipated by financial markets. Officials have said they will release the results in some form by the end of April.

Most major U.S. banks will have reported their first-quarter results by April 24.

The source said the desire to keep the stress test results under wraps will be discussed at the meeting on Friday.

Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp Chairman Sheila Bair are scheduled to attend the meeting, as well as top White House economic adviser Larry Summers, U.S. Securities and Exchange Commission Chairman Mary Schapiro, and U.S. Comptroller of the Currency John Dugan.

The regulators are expected to brief Obama on the progress of the stress tests, and discuss what next steps may be necessary after the tests.

In an attempt to assess banks' capital needs, the government is testing how they would fare under more adverse economic conditions than are expected. The markets are anxiously anticipating the results to see which firms get a clean bill of health and which firms will likely need more taxpayer help.

Some of those market fears were soothed on Thursday when Wells Fargo & Co, the No. 4 U.S. bank, said it expected to post a record $3 billion first-quarter profit, causing its shares to soar 31.7 percent and lifting other bank stocks.

Once the stress tests are finalized and the capital needs are determined, banks will have six months to raise capital in the private market or could take an infusion of government funds.

The government plan to use public-private investment funds to soak up the banks' toxic assets will be another recovery program available to those banks in need.

Officials are still discussing how to release the results of the stress tests, and the decision will likely be made by the Treasury, a source familiar with official talks said.

The source said officials are aiming to release them in some form at the end of April after the first-quarter bank earnings season is over, and are trying to be sensitive to financial market reaction.

(Reporting by Karey Wutkowski; Editing by Gary Hill & Kim Coghill)