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Fed to conduct 4th round of bank stress tests

The second-ranking member of the Federal Reserve said the central bank will conduct fourth round of stress tests in the coming weeks to determine whether U.S. banks can withstand a recession.

Vice Chairman Janet Yellen said Friday that the tests are necessary because of the increased risks that Europe’s debt crisis pose to the U.S. economy and financial markets. She made the comments during a speech at the Federal Reserve Bank of Chicago.

“We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system,” she said.

The Fed oversees Wall Street’s biggest banks, including Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co.

PENNSYLVANIA

Talks on recovery plan for state capital deadlocked

HARRISBURG — With a Monday deadline looming, Harrisburg’s mayor and City Council were deadlocked Friday over a financial recovery plan for Pennsylvania’s struggling state capital.

Both sides said they are willing to continue the discussions, but no further meetings were scheduled.

The city has until Monday to submit to the state Department of Community and Economic Development a plan for paying down $300 million in debt tied to the city’s incinerator and stop a potential state takeover under a newly passed law.

A majority on the council has filed for bankruptcy protection in an effort to get the city’s creditors to forgive $100 million of that debt, but the largest of the creditors — bond insurer Assured Guaranty Municipal Corp. — rejected that idea Wednesday.

A federal bankruptcy judge has set a Nov. 23 court date for oral arguments on legal questions surrounding the Chapter 9 filing.

The takeover law gives Harrisburg a grace period of 30 days, ending Nov. 25, to develop a financial recovery plan. If those 30 days pass without a plan agreeable to the city and the state, the state Commonwealth Court could authorize Gov. Tom Corbett to appoint a receiver with the power to sell city assets and approve contracts — but not raise taxes — to pay down the city’s debt.

From wire dispatches and staff reports