Stress tests don’t uncover doomsday results

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Results of the banking stress tests shouldn’t be causing stress.

While most reports call attention to the 10 banks that need additional capital, only one, GMAC, will need outside assistance.

“The banking industry is well positioned to thrive even within the government’s theoretical doomsday scenario,” said Don Childears, CEO of Colorado Bankers Association.

All 19 of the large financial institutions that were tested are considered “well capitalized,” he said.

Nine of the 10 banks that need additional capital can meet their needs internally by converting existing government investment funds into common stock,” Childears said, or by selling assets or raising private funds. The capital must be raised by Nov. 9.

The tests were designed to show whether bank holding companies could absorb “unlikely” losses in the event of a “rigorous two-year economic scenario” that is not actually expected to occur.

“It’s a what-if scenario,” Childears said.

And, stress tests are not new.

“Banks perform them all the time, and regulators conduct them all the time,” Childears said.

“While the particulars will vary from test to test, the main things that are new about the current tests are the public discussion of the tests and the simultaneous testing of the largest banks in the country.”

And locally, the stress tests results should not affect the availability of loans for businesses that meet credit criteria, said James Moore, senior vice president of Ent Federal Credit Union.

Ent also regularly conducts tests on its portfolio against a variety of rate and financial scenarios.

Moore said that “the array of available resources from financial institutions looks pretty strong locally.”

For updates about the nation’s financial health, visit www.financialstability.gov.