US delays banks' stress-test results to avoid causing panic

Simon English
1 May 2009

The US government is delaying the release of stress tests on the biggest US banks amid fears the results could reignite the financial crisis.

It had planned to make the results public on Monday but will probably give the banks to the end of the week to discuss the findings in private.

Last week it emerged that Bank of America and Citigroup appeared to have failed the tests and were on the verge of being ordered by the government to raise billions of new equity to support their balance sheets.

There remains a chance that the US government, which already owns 40% of Citi, may be forced to nationalise some of Wall Street.

Nineteen banks have been tested - including Goldman Sachs - holding among them two-thirds of the assets and more than half the loans in the US banking system.

The concept of the stress tests has faced intense criticism from analysts and regulators: the government says it needs to know the true state of the banks' finances but analysts say this could expose weaker institutions to unhelpful scrutiny.

Bank share prices around the world could plummet if the stress test results are too negative.

Mark Tenhundfeld of the American Bankers' Association said: "Everybody understands they've got a tiger by the tail here. If they don't let him go gently, there will be a lot of mauling going on."

Bank of America and Citi have already received $95 billion (£64.1 billion) from the taxpayer. The government has also agreed to shield the banks from losses on other assets.

Citi and Bank of America are said to be disputing the notion that they need yet more capital. This week Bank of America's Ken Lewis was forced to stand down as chairman though he remains chief executive.

The scenario has led to tension between Wall Street and Washington and placed ever more pressure on US Treasury Secretary Tim Geithner. Critics say Geithner is not handling the situation well, forcing President Obama to back him more than once.