Bank Stress Test Method Due April 24, Actual Test Results May 4

The story of the next couple weeks is likely to be the bank stress testing, which will involve an April 24 announcement discussing how tests are being conducted and release of actual test results on May 4. See excerpts from a CNBC.com report below as well as accompanying video. Don’t bank regulators already do this? Is this as big of a story as it’s going to be made out to be?

On April 24, the government will reveal the economic and financial assumptions involved in the tests, which are meant to determine an institution’s ability to withstand a further deterioration in the economic environment. Such criteria would include a rise in the unemployment rate.

On May 4, actual results of the test will be released, including what steps may be needed to address a bank’s capital needs.

During that time, the participating banks — the nation’s 19 largest — will hold individual meetings with banking regulators as well as Treasury officials to discuss the results and remedies.

The govenment’s plan has always called for providing federal financial aid to companies that cannot rasie the needed capital from the private sector, which is the preference.

The stress tests are part of the administration’s multi-faceted financial stability plan, which include a public private-partnership for buying banks’ toxic assets, mortgage market support and a business-consumer lending facility.

The assumptions include both base-case and worst-case scenarios, as well as adverse market shocks. Banks will be given an opportunity to comment on the tests in the April 24-May 4 period.