U.S. government outlines stress test capital targets

WASHINGTON Thu May 7, 2009 3:55am EDT

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WASHINGTON (Reuters) - The results of the stress tests of the largest 19 U.S. banks will be released at 5.00 p.m. EDT (2100 GMT) on Thursday and will lay out how much more capital some may need to raise to satisfy new stringent capital cushion targets, the U.S. government said on Wednesday.

Any bank identified as needing fresh capital will have until June 8 to develop a plan, and until November 9 to raise the capital, the U.S. Treasury and bank regulators said in a joint statement.

U.S. regulators also said the banks must review their existing management to "assure that the leadership of the firms has sufficient expertise and ability" to manage risk.

"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," they said.

The U.S. economy is suffering its most severe recession in a generation after a global financial crisis sparked by reckless bets on the country's housing market.

Stress test banks must ensure that they have tier one risk-based capital ratios of 6.0 percent, and tier one common risk-based capital ratios of 4.0 percent at the end of 2010, under a hypothetical sharper than expected economic downturn.

Regulators described the capital as a 'one-time buffer' that will give market participants confidence in the ability of the top banks to continue providing credit to U.S. households and businesses, even if the economy is weaker than expected.

Banks seeking to repay U.S. taxpayer bailout funds will have to prove they can maintain the higher capital buffers and can issue debt not backed by government guarantees.

(Reporting by Alister Bull and Karey Wutkowski)

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