On May 7, the Board of Governors of the Federal Reserve System (Federal Reserve) released the results of its comprehensive assessment of the country’s 19 largest bank holding companies. The supervisory capital assessments (SCAPs) were conducted collaboratively by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (collectively, the Banking Agencies).
The intent of the stress tests was to determine whether these bank holding companies had a sufficient “capital buffer” to withstand losses and sustain lending even if the economic downturn is more severe than currently anticipated.
According to the SCAPs, 10 of the 19 bank holding companies surveyed will need to raise a total of $74.6 billion in capital. In total, the Banking Agencies estimated that losses could reach $599 billion for the group in 2009 and 2010, with most of the losses coming from residential mortgages and other consumer loans. Bank holding companies that need to supplement their capital as a result of the SCAP program will have one month to design a plan, subject to supervisory approval, to put the SCAP capital buffer in place, and the plan must be implemented by early November 2009.
The SCAPs were complementary to the U.S. Treasury Department’s Capital Assistance Program, which provides capital to financial institutions as a “bridge to private capital in the future.”
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