Big banks lobby to boost scores on stress tests

WASHINGTON -- As executives of the nation's largest banks review their stress-test results, even the top performers are lobbying regulators to raise their scores before the numbers are finalized Friday.

Any banks found to need more capital face tough choices that would hurt shareholders and put taxpayer money at greater risk.

The Federal Reserve on Friday privately gave the 19 largest financial firms preliminary results of tests designed to see how they would withstand a harsher recession.

Executives sifted through the data over the weekend, devising arguments they hope will persuade regulators to boost their scores, according to two industry officials who requested anonymity because regulators have barred them from discussing the process.

Banks have until Tuesday to make their cases. They will receive the final test results Friday, and the information will be released publicly May 4.

The results will determine the fates of the companies, which together hold one-half of the U.S. banking system's loans. Banks found to need more capital face several possibilities: The government could convert its stake in them to common shares, force them to raise money from investors or eventually release more funds from the Treasury Department's $700 billion financial bailout.

For Treasury, the easiest way to bolster bank balance sheets is to convert the government's existing stake from preferred shares — a form of debt — into common shares that carry voting rights. This would help Treasury avoid returning to Congress for more bailout money — a request lawmakers are likely to rebuff.

The banks' options are designed to ensure banks have enough cash to withstand the mounting loan losses they would absorb in a bleaker economy.

If the test showed a bank would need more money to endure a much worse recession, regulators will force it to meet higher standards for capital reserves, to offset possible future losses.

Banks deemed to have enough capital may learn whether they'll be permitted to repay billions of dollars the government injected into them last fall, analysts and officials said. Most large banks have said they want to repay the money to escape executive compensation limits and other obligations.