Pan-African News Wire editor, Abayomi Azikiwe, with Sandra Hines of the Moratorium Now Coalition to Stop Foreclosures and Evictions, outside Bank of America on July 22, 2008 in downtown Detroit. (Photo: Alan Pollock).
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02:08 Mecca time, 23:08 GMT
US banks 'need to raise $75bn'
Wells Fargo is one of 10 US banks found to need more capital if an economic crisis deepens
Ten US banks need to raise almost $75bn in additional funds to survive a further major slump in the economy, the US central bank has said, after carrying out "stress tests" on 19 of the country's biggest banks.
Bank of America needs to raise $34bn, more than any other bank, Wells Fargo almost $14bn, and Citigroup needs to raise $5.5bn, the Federal Reserve said on Thursday.
The administration of Barack Obama, the US president, hopes the firms can raise the capital holes from private sources, although Ben Bernanke, the chairman of the Federal Reserve, said the government is prepared to help if needed.
"Our government, through the treasury department, stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn," Bernanke said in a statement.
Bernanke said that the results should "provide considerable comfort" to US investors as almost all of the banks has enough assets to survive the hypothetical adverse scenario.
Stress tests
Nineteen banks were asked to project their income and expenses until 2011, and disclose how much money they would have in reserve.
A stress test is a type of "worst case scenario" where the government outlines a hypothetical situation in which the economy gets progressively worse.
This one looked at how the 19 banks would fare if the economy were to shrink by more than three per cent, and unemployment continued to rise.
"Roughly half the firms, though, need to enhance their capital structure to put greater emphasis on common equity, which provides institutions the best protection during periods of stress".
The total figure also appeared to be small enough to ensure that the White House would not have to approach congress for more money after the $700bn bailout of financial firms approved last year by George Bush, the previous US president.
Citigroup, Bank of America and Wells Fargo have already received about $65bn in government bailout money.
James Galbraith, a US economist, told Al Jazeera that questions over the health of the banks remained.
"If the test showed they did not need capital, no one would believe them," he said.
"The real question is that whether the toxic assets they hold are so riddled with fraud and corruption that they [the Banks] cannot recover ... or whether they are not."
"Until the assets are examined, the stress tests are not going to give us a definitive answer."
Source: Al Jazeera and agencies
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