- The Washington Times - Saturday, April 11, 2009

The Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.

The Fed wants to ensure that the report cards don't leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government's plan to release the results in an orderly fashion later this month.

“If you allow banks to talk about it, people are just going to assume that the ones that don't comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington.

Regulators are using the tests to determine whether the 19 biggest banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining. The tests are a linchpin of the plan Treasury Secretary Timothy F. Geithner announced in February to bolster confidence in the nation's banks and restore financial-market stability.

Mr. Geithner has likened the stress tests to those used by doctors to evaluate a patient's health. They are designed to mesh with the administration's effort to remove distressed mortgage assets from banks' balance sheets. The Fed is overseeing the administration of the tests, people briefed on the matter said.

President Obama received a progress report on the tests Friday during a meeting with his economic team. Mr. Geithner attended, along with Federal Reserve Chairman Ben S. Bernanke and Sheila Bair, chairman of the Federal Deposit Insurance Corp.

Goldman Sachs plans to report first-quarter earnings on Tuesday, followed by JPMorgan Chase & Co. on Thursday. Citigroup reports on Friday, and Morgan Stanley announces April 21. All four banks are based in New York.

Spokesmen for the banks declined to comment.

“No matter what the result, the stress tests are going to move markets,” Camden Fine, president of the Independent Community Bankers of America, said in an interview Thursday. “That's the tricky part. If they don't give out enough information or the information is presented in the wrong way, that could cause markets to plunge.”

Banks should stay silent because a focus on the tests would be “a harmful distraction” from earnings, said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable in Washington.

“It is premature for banks to talk about the stress tests,” Mr. Talbott said Thursday. “They aren't finalized yet and there is no framework to evaluate the results.”

Under the Treasury's plan, banks would have six months after the reviews to raise any new capital they might need. If the money isn't obtained from private investors, the government will provide the funds from the $700 billion bank-rescue plan.

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