Banks Successfully Lobbied Fed to Make 'Stress Tests' Less Stressful

Posted by Faiz Shakir, Think Progress at 10:27 AM on May 9, 2009.

This week, the government released the results of the stress tests performed on the nation’s 19 largest banks. According to the report, Bank of America’s $34 billion hole was the largest. The Wall Street Journal reports, however, that the Fed Reserve initially estimated Bank of America’s figure at more than $50 billion. Over the last few weeks, a number of banks successfully lobbied the Fed to make the stress tests less stressful:

The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation’s biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.

In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.

The Wonk Room’s Pat Garofalo notes that one interesting element of the announcement last week is that the banks will now have the opportunity to convert government debt into equity if the need arises, leaving the taxpayer on the hook for a larger bailout of the banks.

Tagged as: banks, fed, bank of america, stress tests

Faiz Shakir is the Research Director at the Center for American Progress and serves as Editor of ThinkProgress.org and The Progress Report.