Dedicated to Deposits: Deals, Data, and Discussion

Bank Stress Test Results - Impacts to Depositors?

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The results of the government's stress tests were released today. Out of the 19 banks that were assessed, 10 are being required to raise a total of $75 billion in capital to ride out potential losses due to the recession. Here's the breakdown of the required capital based on the Overview of Results that's available at the Federal Reserve website:
  • Bank of America - $33.9 billion
  • Wells Fargo - $13.7 billion
  • GMAC - $11.5 billion
  • Citigroup - $5.5 billion
  • Regions - $2.5 billion
  • SunTrust - $2.2 billion
  • KeyCorp - $1.8 billion
  • Morgan Stanley - $1.8 billion
  • Fifth Third - $1.1 billion
  • PNC - $0.60 billion
I'm a little surprised to see how much capital GMAC requires. It's by far the smallest of those other three banks that make up top four on the list. It'll be interesting to see what effect this will have on GMAC Bank. This bad PR may scare away some deposit dollars which may force GMAC Bank to raise interest rates.

The question about how these stress test results will impact consumers is discussed in this Mercury News article. According to the article, bank customers will probably not see many changes. Banks could sell off some units, but this won't have much effect except possibly on customer service. Regarding increases in deposit rates, an economist interviewed in the article didn't think higher deposit rates would be able to help the banks fast enough to meet the deadlines required by the government. It's more likely we'll see higher bank fees and credit card rates.


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Comments
9 Comments.
Comment #1 by Anonymous posted on
Anonymous
Well, I guess that's why Regions, an Alabama bank, was advertising on television here in Southern California.

http://www.regions.com/about_regions/regions_history.rf

1
Comment #2 by Anonymous posted on
Anonymous
Well if they paid the same rates on CDs as they charge credit card customers, these banks would have no shortage of depositors raising their cash reserves.

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Comment #3 by Tsunami Cid (anonymous) posted on
Tsunami Cid
I guess it's faster to raise capital by punishing dumb people rather than rewarding smart people..

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Comment #4 by Anonymous posted on
Anonymous
The whole bank stress test is nothing more then a smoke screen.
Nobody knows what these make believe numbers are and how will reflect in a real scenario.

This is done just to fool the ordinary people into false sense of security.

The banks portfolios change by the minute 24/7 and to look into future with such certainty is nothing more then FEDs way of projecting unreal numbers for the ordinary person confusion and disbelieve.

Since the above banks are not allowed to fail, what is the purpose of such test. We spent $700 billions already, another $70 billions is nothing. FDIC guaranties all of the deposits and this test is just a waste of time and money.

1
Comment #5 by Anonymous posted on
Anonymous
We're seeing a rise in long-term rates. For example, the yield on the 10-year US Treasury note is up to 3.32% and the long bond yield is up to 4.28%. Do the financial markets sense that inflation may be on the horizon? Unit labor costs for the first quarter, as reported today, suggest a bit of wage inflation, which may precede inflation in general.

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Comment #6 by Anonymous posted on
Anonymous
The FEDs did not succeed to totally destroy our savings with effectively negative interest rates, next step is to destroy our savings with inflation. Way to go FEDs!!!!!!!!!!!!!!

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Comment #7 by Anonymous posted on
Anonymous
" ... an economist interviewed in the article didn't think higher deposit rates would be able to help the banks fast enough to meet the deadlines required by the government."

Really?

Given the way we've seen banks offering decent deposit rates overwhelmed in about a week's time, I find that hard to believe.

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Comment #8 by Anonymous posted on
Anonymous
"Given the way we've seen banks offering decent deposit rates overwhelmed in about a week's time, I find that hard to believe."

Well, many of those banks are tiny - most have under $500 million in assets. The amount of capital certain big banks need to raise is many times the entire asset base of these smaller banks.

Plus, I'm sure it's not in their business plan to offer "competitive" deposit rates. They leave that to the little banks. It's much easier to get free money from the taxpayers.

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Comment #9 by Anonymous posted on
Anonymous
Why the banks should pay interest on our deposits, when they can get free money from the FEDs, as much as they want, for free.

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