Stress tests aim for capital 'buffer' for banks

The "stress tests" of major US banks will call for a capital buffer to help them withstand a worse-than-expected 3.3 percent economic contraction in 2009, the Federal Reserve said Friday.
Preliminary results of the tests were given to the 19 largest banking firms Friday and complete results will be made available starting May 4, according to the Federal Reserve, which released its methodology for the tests.
Fed officials said the tests would help reveal the need for additional capital from the government or private sources in case of a bleaker economic scenario than expected.
A Federal Reserve "white paper" showed the baseline forecast of a 2.0 percent decline in US output in 2009 followed by growth of 2.1 percent in 2010.
But banks would be expected to withstand a scenario in which the economy dropped 3.3 percent this year and grew only 0.5 percent in 2010.
The tests are part of an effort by President Barack Obama's administration to introduce transparency into its efforts to rescue the crippled banking sector, and will also help it evaluate how much government cash individual banks might need to return to health.
Officials declined to offer details on how results would be revealed for the leading 19 banking groups subject to the stress tests.