By Karey Wutkowski
WASHINGTON, March 4 (Reuters) - A U.S. Congressional watchdog agency is studying last year's bank stress tests, the government exercise that helped shore up public confidence in the nation's largest banks.
A spokesman for the Government Accountability Office told Reuters on Thursday the agency is taking stock of the tests as part of its mandate from the Troubled Asset Relief Program, the government's $700 billion financial bailout plan.
The report is expected to be released this summer and could reveal just how rigorous the tests were and how that unusual exercise could inform the future policing of banks.
The stress tests of the 19 largest U.S. banks were conducted in early 2009 as markets were still reeling from the collapse of major investment bank Lehman Brothers.
Bank stocks were highly volatile at the time, as investors feared that toxic assets still lurked on banks' balance sheets but were not being reckoned with.
The government conducted the stress tests, which gauged how the banks would fare if economic conditions continued deteriorating at a rapid clip, to determine the banks' true financial state.
The extraordinary exercise found in early May 2009 that 10 banks needed to raise more capital to give themselves extra buffers to weather the economic downturn.
That group of banks included Bank of America, Citigroup and Wells Fargo.
While stocks rebounded following the results, critics said the test conditions were not rigorous enough and questioned whether the exams were simply a political maneuver.
GAO spokesman Chuck Young said the study will examine exactly how regulators designed and conducted the tests and what lessons could be incorporated into regulator bank supervision.
The Federal Reserve has said that it plans to use a more 'horizontal' approach like the one in the stress tests, to help identify problems that stretch across the bank industry.
Young also said the GAO will look at the macroeconomic scenarios used, such as the 'adverse' scenario in which unemployment would hit 8.9 percent in 2009. In reality, unemployment reached 10.1 percent last year.
Further, the GAO will study what challenges regulators face in updating bank holding company performance, Young said.
(Reporting by Karey Wutkowski, editing by Matthew Lewis) Keywords: BANKS/GAO (karey.wutkowski@thomsonreuters.com; + 1 202 898 8374) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WASHINGTON, March 4 (Reuters) - A U.S. Congressional watchdog agency is studying last year's bank stress tests, the government exercise that helped shore up public confidence in the nation's largest banks.
A spokesman for the Government Accountability Office told Reuters on Thursday the agency is taking stock of the tests as part of its mandate from the Troubled Asset Relief Program, the government's $700 billion financial bailout plan.
The report is expected to be released this summer and could reveal just how rigorous the tests were and how that unusual exercise could inform the future policing of banks.
The stress tests of the 19 largest U.S. banks were conducted in early 2009 as markets were still reeling from the collapse of major investment bank Lehman Brothers.
Bank stocks were highly volatile at the time, as investors feared that toxic assets still lurked on banks' balance sheets but were not being reckoned with.
The government conducted the stress tests, which gauged how the banks would fare if economic conditions continued deteriorating at a rapid clip, to determine the banks' true financial state.
The extraordinary exercise found in early May 2009 that 10 banks needed to raise more capital to give themselves extra buffers to weather the economic downturn.
That group of banks included Bank of America, Citigroup and Wells Fargo.
While stocks rebounded following the results, critics said the test conditions were not rigorous enough and questioned whether the exams were simply a political maneuver.
GAO spokesman Chuck Young said the study will examine exactly how regulators designed and conducted the tests and what lessons could be incorporated into regulator bank supervision.
The Federal Reserve has said that it plans to use a more 'horizontal' approach like the one in the stress tests, to help identify problems that stretch across the bank industry.
Young also said the GAO will look at the macroeconomic scenarios used, such as the 'adverse' scenario in which unemployment would hit 8.9 percent in 2009. In reality, unemployment reached 10.1 percent last year.
Further, the GAO will study what challenges regulators face in updating bank holding company performance, Young said.
(Reporting by Karey Wutkowski, editing by Matthew Lewis) Keywords: BANKS/GAO (karey.wutkowski@thomsonreuters.com; + 1 202 898 8374) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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