Regulators Will Soon Begin Bank Stress Tests

U.S. financial regulators will soon launch a series of "stress tests" to determine which of the largest U.S. banks may need additional capital cushions in the event of a deeper recession, a person familiar with Obama administration plans said Saturday.

The person, speaking on condition of anonymity, said if institutions were found to need additional capital, financial authorities would provide them with an "extra cushion of support." Banks are expected to receive additional information about the tests in the coming week from regulators.

Banks are expected to receive additional information about the tests in the coming week from regulators.

The largest U.S. banks are "well capitalized" for current conditions, the source said, but the Obama administration wants to ensure that they can withstand a more severe economic climate and can play an important role in maintaining the flow of credit.

Initial plans for the stress tests were announced Feb. 10 as part of Treasury Secretary Timothy Geithner's bank stabilization plan, but the source Saturday for the first time linked the tests to additional government support for large banks. This person did not specify what form any extra capital cushion may take.

Little is known about the form of the stress tests, but the person described them as "consistent, forward looking and conservative."

The Obama administration on Friday tried to ease market fears that the government was poised to nationalize some large banks that are continuing to struggle with losses and a lack of confidence, notably Citigroup and Bank of America.

Bank of America lost 32 percent last week, closing at $3.79, a more than 24-year low.

Citigroup tumbled 46 percent last week to end at $1.95, an 18-year low.

White House spokesman Robert Gibbs said Friday that "this administration continues to strongly believe that a privately held banking system is the correct way to go."

That was quickly echoed by a similar statement from the U.S. Treasury. The White House and Treasury late Friday sought to shoot down persistent rumors Citibank and Bank of America are about to become wholly owned subsidiaries of Uncle Sam.

The White House said it strongly believed in a privately held bank system, after rumors that the U.S. government could nationalize banks saw shares in Bank of America  and Citigroup plummet to fresh lows.

Slideshow: Bank Failures of 2008

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