April 10, 2009 / 7:29 PM / 11 years ago

CORRECTED - UPDATE 3-Obama plans meeting Friday on bank stress tests

(Corrects name in third paragraph to Schapiro from Shapiro) (Adds Schapiro, Dugan also attending meeting)

By Karey Wutkowski

WASHINGTON, April 9 (Reuters) - U.S. President Barack Obama plans to meet on Friday with top financial regulators to discuss the “stress tests” being conducted at the 19 biggest U.S. banks, a White House spokesman said on Thursday.

Obama will talk with Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp Chairman Sheila Bair, as well as top White House economic adviser Larry Summers, on a “broad” range of financial topics, said spokesman Robert Gibbs.

Mary Schapiro, chair of the Securities and Exchange Commission, and John Dugan, the comptroller of the currency, also will be at the meetings, the White House said.

“I’m sure health assessments of banks will be discussed, financial re-regulation, and an update off of, and a building on, the momentum of G20,” Gibbs said.

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 — which are due at the end of April — 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 (WFC.N), 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.

Gibbs said he did not know how the government plans to publicly disclose the results. But he said, “I think the administration believes it’s important that there be some transparency around that.”

The regulators are expected to give Obama a progress report on what the regulatory stress tests are showing about the state of the top banks.

A source familiar with the meeting said regulators plan to also discuss with Obama what next steps may be necessary after the tests.

U.S. officials will not look to close any banks based on the results of stress tests, another source familiar with official talks said.

“You can’t close a bank based on a hypothetical,” that source said, speaking anonymously because the tests are still being finalized. “And you wouldn’t want to anyhow, based on the size of the banks.”

However, the tests are likely to show that some banks may have sizable capital needs under the conditions being tested, which is “common sense,” the source said.

The tests may not be viewed as credible if they show that an institution such as Citibank would perform well under the adverse economic conditions being tested, the source said.

Citibank is the retail banking arm of financial services giant Citigroup (C.N), which has received more than $45 billion in taxpayer bailout funds, as well as loss guarantees.

An FDIC spokesman said the stress tests will help determine whether the biggest U.S. financial institutions need to raise capital or sell assets.

“The FDIC views the stress assessments as a necessary step in the process of proactively assuring the strength and stability of our banking system over the next few years,” FDIC spokesman Andrew Gray said.

“These assessments should guide institutions in whether they should raise capital or sell assets to promote a more vibrant, strong banking system,” Gray said.

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, the 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. (Additional reporting by Rachelle Younglai, John Poirier, Ross Colvin, and Jeff Mason; Editing by John Wallace and Tim Dobbyn)

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