Report: 10 US banks need more capital

May 5, 2009, 2:12 GMT

New York - About 10 large US banks will need to increase their capital under a government stress test to measure their health, the Wall Street Journal reported Tuesday, citing people familiar with the discussions.

Citigroup, the Bank of America and Wells Fargo are among the 19 banks being examined by the Obama administration who may need to raise more capital to protect themselves against the ongoing financial crisis.

The US central bank will release the results of the long-awaited bank stress tests on Thursday after markets close, the paper said.

Federal Reserve chief Ben Bernanke will testify before Congress on Tuesday on the nation's economic outlook and could also comment on the closely-held results of the two-month-long stress tests.

The banks received the results of the stress test on April 24, and were given time to appeal and argue the findings with examiners. Appeals have been filed by Citigroup and Bank of America, Bloomberg financial news service reported last week.

There is concern among both regulators and bank officials about the financial fallout the report will have.

Further cash infusions for stressed banks could come from the US government, but more likely from more conversions of shares to common stock.

The 19 banks in the stress test were selected for having more than 100 billion dollars in assets. Together, they hold two-thirds of the assets and more than half of the loans in the US banking system.

Under the plan, banks which are found short of capital could be forced to sell ownership stakes to the US government.

Seeking to reassure nervous investors, the Federal Reserve said April 24 that most US banks have capital levels 'well in excess of the amounts required to be well capitalized.'

Given the 'heightened uncertainty' about the future course of the US economy, however, regulators are looking for banks to have enough capital for the next two years to keep credit lines flowing.

The test has caused jitters among investors over fears the programme could end up with the government nationalizing banks. Banks are also resisting suggestions that the government could limit managers' salaries and bonuses, even as public outcry grows over bonuses paid out of government bail-out money last year.

Both the US government and the Federal Reserve have pumped unprecedented hundreds of billions of dollars into struggling US banks as they try to keep their heads above a flood of failed US mortgages that are at the heart of the world financial crisis.