Stressed Banks Will Not Be Allowed To Fail

Results of the government’s stress tests have already been delayed, but regardless of the outcome none of the tested banks will be allowed to fail.

Instead of failure, the banks must raise additional capital to help protect their portfolios against the government’s worst-case scenario economic forecast.

Photo by _ES, courtesy of flickr

According to the Associated Press, sources revealed Wells Fargo, Bank of America, and Citigroup will be asked to raise more capital.

I don’t think we needed a stress test to figure that one out.

Sources also say BofA and Citi are “disputing preliminary findings” that they need more capital. Pretty typical, right?

Here is a complete list of the tested banks and their tickers, courtesy of CNBC.com:

Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS), Metlife (MET), PNC Financial Services Group (PNC), U.S. Bancorp (USB), Bank of New York Mellon (BK), GMAC LLC (GJM), SunTrust Banks (STI), Capital One (COF), BB&T (BBT), State Street (STT), Regions Financial (RF), American Express (AXP), Fifth Third Bancorp (FITB), and Keycorp (KEY).

All of the listed banks closed substantially higher yesterday, but common shareholders should not get too excited just yet.

Yes, these banks are now officially too big too fail, but the ones that need additional capital could choose routes which will further dilute common equity.

According to Bloomberg, some representatives of the banks will meet with government officials after markets close on Thursday to discuss the tests.