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A line was drawn today between America's strong and weak banks as Washington published results of stress tests on 19 US financial institutions.
The Federal Reserve has ordered some of the biggest banks in the US to bolster their capital reserves by more than $60 billion (£39.6 billion) to shield them against potential future losses.
Bank of America was told to raise $34 billion, Wells Fargo $15 billion, GMAC $11.5 billion and Citigroup $5 billion. Morgan Stanley, which along with Bank of America and Citi employs thousands of staff in London, needs to raise $1.5 billion.
The Fed also gave a clean bill of health to another group of banks including Goldman Sachs, JP Morgan Chase and Bank of New York Mellon which have weathered the credit crunch and recession far better than their rivals.
It immediately drew a line between those banks considered strong and those weak. Until this point, Barack Obama and his Treasury Secretary Timothy Geithner have been keen to paint all banks equally.
The stronger banks will now be able to start repaying bailout aid from the government, freeing them from restrictions on bonuses and dividends.
Obama hopes the stress tests, which put the banks up against a far worse recession than currently expected, will mark a turning point for the recovery of the industry.
Geithner said the results, due to be officially published tonight after the close of trading in New York, painted a “reassuring” picture of the banking system. He also said no bank involved in the stress tests would be allowed to fail.
Geithner said: “There is a very significant cushion in these institutions today, and all Americans should be confident that these institutions are going to be viable institutions going forward.”
Bank stocks surged on Wall Street last night after leaks of the findings showed firms needed less extra cash than feared by many analysts and investors.
