(Reuters) - U.S. banks will be briefed by regulators as early as Friday on how they performed in government “stress tests,” before the results are made public later, The Wall Street Journal reported, citing government officials.
Some estimates of banks’ likely losses that were used in the stress tests were tougher than expected, the newspaper said.
“Under a more adverse scenario, which assumes a 10.3 percent unemployment rate at the end of 2010, banks would have to calculate two-year losses of up to 8.5 percent on their first-lien mortgage portfolios, 11 percent on home-equity lines of credit, 8 percent on commercial and industrial loans, 12 percent on commercial real estate loans, and 20 percent on credit card portfolios,” the paper said, citing a confidential document from the Federal Reserve.
The Fed declined to comment.
These assumptions could result in losses equal to more than half of Tier 1 bank capital, investment bank Westwood Capital estimated. Tier 1 capital is a measure of capital relative to assets, accounting for how risky the assets are.
For a group of 13 stress-tested banks -- including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, and Wells Fargo -- Westwood Capital forecast $240.2 billion in losses, or 56 percent of their total Tier 1 capital.
“This a very disturbing bit of leaked information,” Westwood Capital wrote in a research note on Wednesday.
On Tuesday, U.S. Treasury Secretary Timothy Geithner said most U.S. banks have enough capital to keep lending, but a pile of bad debts is fostering doubts about their health and slowing a recovery.
An official at the Federal Reserve said last week that results of the tests, designed to see how the nation’s 19 largest banks would fare should the U.S. recession prove unexpectedly severe, would be made public on May 4.
The official said regulators will try to prove the rigor of the tests by releasing a document on Friday that explains the underlying assumptions. The document will outline the methodologies employed and serve as a guide on how to interpret the results.
Reporting by Jennifer Robin Raj in Bangalore, additional reporting by Juan Lagorio in New York; editing by John Wallace and Carol Bishopric
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