Ten major US banks need to raise a total of $74.6 billion for 'capital buffers' in the event of a deeper economic slump under stress tests unveiled last night by US regulators.
Federal Reserve chairman Ben Bernanke said the results 'should provide considerable comfort to investors and the public,' despite the need for new capital in 10 of the 19 banks subjected to the process.
Bernanke pointed out that the Treasury 'stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn.'
The central bank, which conducted the tests at the request of President Barack Obama's administration, said they showed the banks can withstand an adverse economic scenario but will be required to raise fresh capital to boost their reserves against losses.
Treasury Secretary Timothy Geithner said the tests 'will help replace the cloud of uncertainty hanging over our banking system with an unprecedented level of transparency and clarity.'
Among the 19 banks tested, Bank of America had the largest need at $33.9 billion, followed by Wells Fargo with $13.7 billion.
Bernanke said nearly all the banks have sufficient capital 'to absorb the higher losses envisioned under the hypothetical adverse scenario.'
But he noted the 10 firms judged to have shortfalls 'need to enhance their capital structure to put greater emphasis on common equity, which provides institutions the best protection during periods of stress.'
The report projected potential losses of $600 billion in 2009 and 2010 for the banks under an 'adverse' economic scenario. This would require $185 billion in new capital, but the banks have already raised or made provisions for $110.4 billion, leaving a possible shortfall of $74.6 billion.
GMAC, the former finance arm of General Motors, was seen as needing $11.5 billion, while Citigroup needed $5.5 billion.
The others included Regions Financial ($2.5 billion), SunTrust ($2.2 billion), KeyCorp ($1.8 billion), Morgan Stanley ($1.8 billion), Fifth Third ($1.1 billion) and PNC ($600m).
Those not in need of new capital were American Express, BB&T, Bank of New York Mellon, Capital One, Goldman Sachs, JPMorgan Chase, MetLife, State Street and US Bancorp.
Some banks immediately announced plans to raise new capital through share offerings or by exchanging some preferred shares for common stock, which is seen as a better buffer. Wells Fargo said it would launch an offering of billion dollars of common stock.
Morgan Stanley said it had commenced a public stock offering of $2 billion and would seek to repay the US Treasury's investment as soon as possible. Morgan Stanley also said it would offer $3 billion in bonds not guaranteed by deposit insurance.
Bank of America said it would meet regulator demands through sales of assets and other actions that allows it to repay the US Treasury.
Citigroup unveiled a plan to shore up its capital base by exchanging preferred shares for common ones, saying the move would limit the US government stake in Citi to 34%.
The troubled bank, which had to turn to the Treasury to avert a meltdown in 2008 and again in 2009, said its moves would boost its capital position by increasing its exchange of preferred shares for common stock.
