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NEWS: 5/7/09

5/7/09- Stress Test

Lenders and investors fear the widespread uncertainty sounding the financial Industry. The stress test is meant to alleviate much of the uncertainty by distributing extraordinarily detailed results – reaching a level of disclosure that is rarely witnessed.

The stress test assumes banks could loose up to $600 billion if the economy continues to fall. It also estimates that in the next 2 years banks will earn $363 billion. If the stress test had been performed in December 2008, banks would be required to raise $185 billion in capital. However, by selling assets and converting preferred stock into common stock, the government has reduced this by $110 billion – leaving $75 billion in capital to be raised by 10 of the 19 banks over the next 6 months.

- Wall Street Journal: Stress Tests: A Test of Transparency – David Wessel

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