Fed to banks: Keep mum on stress test results
Federal regulators have told the nation’s largest banks to keep quiet about their performance on government stress tests. They fear that investors could punish companies with nothing to brag about.
In letters to the 19 banks undergoing tests of their financial strength, regulators told the companies not to disclose their performance during upcoming earnings announcements, according to industry and government officials who requested anonymity because they are not authorized to discuss the process.
The order was the latest in a series of government moves designed to keep good news about strong banks from dooming others to a downward spiral of falling share prices and financial weakness. If banks receiving the highest marks trumpet their results, the fear is that investors might push down share prices of those companies that make no such announcements.
Government officials want to announce the results all at once, at the end of the month.
The stress tests are a centerpiece of the Obama administration’s ongoing effort to stabilize the banking industry. They subject the banks’ books to a series of negative scenarios, including double-digit unemployment and further drops in home values.
The test results will help regulators determine which banks are strong enough with current subsidies, which need more money from the government or private investors, and those not worth saving.
The letters follow public statements from bank executives about the tests, including Wells Fargo & Co. Chief Executive Richard Kovacevich’s calling the process “asinine.”
Bank of America Corp. CEO Kenneth Lewis and Citigroup Inc. CEO Vikram Pandit both have alluded to strong performance on separate, internal stress tests in recent memos seeking to build employee confidence.
Lewis also told reporters last month that he expected Bank of America to pass the government’s tests.