Fed Releases White Paper on Bank Stress Test Methodology; Results Will Be Public May 4

As reported on the Wall Street Journal website this afternoon, the Federal Reserve released a White Paper earlier today outlining the methodology used in the stress tests applied to banks under Treasury Secretary Tim Geithner's Financial Stability Plan.

In their article, Fed Releases Stress Test Results, WSJ writers Damien Paletta, David Enrich and Robin Sidel report: "The Federal Reserve on Friday said any banks directed to raise new capital as a result of the government's stress tests should not be viewed as insolvent or unviable, one way government officials are trying to manage the potential fallout from the high-stakes exams.
The central bank released the methodology of its stress tests Friday, the same day bank executives across the country huddled with Fed officials to go over their results. The Fed is sharing with the banks how much capital each company might need to raise to satisfy regulators that they can continue lending if the economy worsens significantly next year." They add, "Banks will have several days to challenge the findings before the government makes results public the week of May 4."

Here is the Fed's press release and the Fed's white paper: The Supervisory Capital Assessment Program: Design and Implementation. The WSJ's Real-Time Economics Blog has posted a List of 19 Banks Undergoing Stress Tests.

G-7 Finance Ministers Meet; Financial Stability Board Issues 2nd Report on EESA
In other news, the G-7 Finance Ministers and Central Bank Governors are meeting in Washington, D.C. today, here is the G-7 Statement issued today, and here is the related Statement of U.S. Treasury Secretary Geithner at the G-7 meeting.

Separately, the Financial Stability Oversight Board issued its second quarterly report to Congress today (covering the period Jan. 1 to March 31, 2009) on the Emergency Economic Stabilization Act of 2008.

As noted in this press release issued by the U.S. Treasury Department:

• The report highlights the oversight activities of the Oversight Board during the quarterly period. It also presents the Oversight Board's evaluation of the effects thus far of the policies and programs implemented by Treasury (Treasury) under the Troubled Assets Relief Program (TARP).
• In addition, the report describes the programs, policies, administrative actions, and financial commitments of the Treasury Department under the TARP during the quarterly period.
• In the report, the Oversight Board indicates its belief that the actions taken by Treasury under the EESA have provided critical support to the financial system during this period of market turbulence and weakening economic conditions.
• Together with other government actions, the report states that Treasury's actions may have helped prevent the current financial crisis from triggering a severe global financial and economic meltdown.
• The Oversight Board believes the Treasury should continue to use its TARP authority to stabilize financial markets, help strengthen financial institutions, improve the functioning of the credit markets, and address systemic risks given the consequences that potential instability of the nation's financial institutions and markets can have for the broader economy.

There are various oversight mechanisms established for EESA and the TARP program in addition to the Financial Stability Oversight Board. These include the Congressional Oversight Panel, which has issued various reports and recommendations on these matters, and made broader recommendations for the regulatory system. Another arm of oversight is through the Office of the Special Inspector General for the Troubled Asset Relief Program - aka SIGTARP. In addition, GAO has issued various reports, including its 100 page report (see 2 page Highlights) issued in March 2009: Status of Efforts to Address Transparency and Accountability Issues.

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