Stress-test results raise questions: Here are answers

— -- Regulators' ambitious stress tests of the nation's 19 largest bank holding companies are finally finished. But the results, while addressing some concerns about the industry's health, are reviving old questions. And they're raising new questions.

Q: What's the significance of the stress tests?

A: The stress tests measure banks' and the industry's financial health if the economy severely worsens. The results — showing that 10 of the nation's largest banks will need to raise capital, while nine will not — "will help replace the cloud of uncertainty hanging over our banking system," Treasury Secretary Timothy Geithner said Thursday.

Regulators hope that the more information investors have about banks' financial conditions, the easier it will be for the industry to raise private capital. This, in turn, will allow banks to resume lending to consumers and small businesses, easing the credit crunch that has afflicted the nation.

Q: Were the tests strenuous enough?

A: The tests represent the government's best guess about banks' fiscal condition and their future capital needs. But they don't give a definitive clean bill of health. Some critics say that regulators should have designed a tougher test, which would have shown that the nation's 19 largest banks need significantly more capital than $75 billion.

For instance, regulators estimated banks' capital needs based on their risk-weighted assets, a measure generally favorable to banks because it allows them to hold less capital against assets considered less risky. But this "is not as stringent as other capital measures," says Joshua Rosner, managing director of Graham Fisher & Co., an independent research firm. "To use the risk weightings is fallacious, because the risk weightings are what suggested that there was no risk in residential mortgages."

Q: What do the results mean for the recovery of lending — and for the economy?

A: Economic recovery largely hinges on banks lending to consumers and businesses, which in turn, will boost spending and jump-start the economy. But economic recovery also depends on investors' perception of banks' health, and their willingness to invest in the industry. In upcoming days, it will become clearer how investors will dissect the nitty-gritty of the stress-test results.