Bank of America (BAC) and Citigroup (C) may face regulator pressure to raise billions of dollars in capital after the government-imposed stress tests of the 19 largest US banks, unnamed sources told the Wall Street Journal. The banks, both recipients of  $45bn through the Treasury Department‘s Troubled Asset Relief Program, did not release official statements before this story went to press. Analysts that predict regional banks exposed to commercial real estate loans also scored poorly on the tests. Regions Financial (RF), Fifth Third Bank (FITB) and Wells Fargo (WFC) may sit close in line behind BofA and Citi as contenders for increased capital, analysts told the Journal. Banks with excess of $100bn in assets participated in stress tests by federal officials to determine their ability to weather projections of future business both under current circumstances and a set of more adverse circumstances, should the recession last longer and dig deeper into banks’ reserves than anticipated. Federal officials offered three alternatives to banks that lack sufficient reserves: raise private investor funds, receive additional government aid or convert the government’s existing preferred shares into common shares, effectively placing part of the firm in government ownership. The Federal Reserve, in reporting stress test methods late Friday, say most banks retain enough capital to weather a longer, more severe recession, although deteriorating economic conditions affect the reserve capital held among some banks. Write to Diana Golobay at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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