FINAL Stress Test Results: Banks Need $74.6B to Cover Estimated $600b In Losses

The official results of government stress tests on the nation’s 19 largest banks revealed that 10 banks need to raise a total of $74.6 billion to cover estimated losses of about $600 billion over the next two years as write-downs continue and the economy tries to recover. The Wall Street Journal did a very good interactive chart of test results. The WSJ report also said this might tighten loan availability:

Experts warn that the tests could have a serious unintended consequence: Loans could be harder to come by for consumers and businesses. That’s because the government’s intense focus on thicker capital cushions might prompt banks to hoard cash and further curtail lending, said Jim Eckenrode, banking research executive at TowerGroup, a financial consulting firm. He said banks will have less room to offer consumers low interest rates, while corporate customers may have a tougher time getting financing for commercial real-estate and property development.

Government regulators want banks to maintain tangible common equity equal to 4 percent of their risk weighted assets over the next two years. Tangible common equity is one of the most conservative measures of capital.

Treasury Secretary Tim Geithner said that the results will be reassuring. There are $110b left in TARP funds but the “reassuring” message is based on a theory that banks won’t have to tap this. Instead they can raise private money and/or use the government’s PPIP program to sell assets and raise money.

Here’s another WSJ interactive stress test chart that provides a quick view of where all tested banks fall in a number of categories: new capital needed, tangible common equity ratio, tier 1 ratio, TARP funds received, market cap, and Q1 loan loss provisions.