Economy Rockford: Banking on Billions

The federal government’s stress test results are in, and they show more than half of the largest U.S. Banks need billions of dollars. Brad Gummow, a local financial expert, explains what the results say about the strength of our banking system.

Brad Gummow says its no surprise that so many banks shows signs of stress and were told to raise big bucks. Giants: Bank of American, Citibank, and Wells Fargo, need to come up with the biggest amount, more than 50 billion dollars combined. Gummow says the test was a check up on the health of these institutions to see if they could withstand a deeper recession, especially if unemployment reaches ten percent. Despite the results, Gummow does believe the news could be a turning point.

“If they get up to proper capital levels, their ongoing viability can be stronger. And typically, for there too be a good economic turnaround, it needs to be built on the financials. For capitalism to truly work, there has to be the on going accessibility to more and more capital, because when businesses start to borrow, if there was some type of business turnaround, having that capital available is good.”

The banks on the list have six months to raise money, either through private investors or by selling assets. They can also ask the government to convert its existing stake in the banks into common stock. JP Morgan, Chase, American Express, and Goldman Sachs all passed their checkups without needing more money.

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