The results of the examination will include information at both the aggregate and specific bank holding company levels and estimates of losses for certain categories of loans and resources to absorb those losses under the more adverse economic scenario, the government source said.
The U.S. Treasury and Federal Reserve are conducting a battery of tests to see how the capital cushions of the country's biggest banks would weather an economic downturn that was more severe than anticipated.
The government source said the examination was not a solvency test, but rather a what-if exercise to help supervisors gauge the need of any additional capital that would be needed across a range of economic outcomes.
Regulators have stress-tested the 19 largest U.S. banks to determine their capital needs should economic conditions deteriorate further.
The information has the potential to alarm investors and send certain bank stocks lower, depending on how large the capital needs are found to be.
Officials have said banks will be encouraged to turn to their own stakeholders first to build capital by extending conversion offers to their preferred shareholders.
Regulators are putting more emphasis on common equity, because they say it is more flexible and can absorb losses better than other forms of capital.
Conversion offers lessen the chances government officials will have to seek more bailout funds from Congress in the near future.
The pain for equity holders could be balanced by an overall stabilization in the banking sector if officials reiterate their promise to stand behind the 19 firms, said Lou Crandall, the chief economist at Wrightson ICAP.
"Clarifying exactly how the bank holding companies as a whole will be recapitalized can be a positive for debt holders and the system as a whole, while still being a negative for shareholders and holders of equity," Crandall said.
The stress-test program has evolved since the Treasury Department announced in February that it was embarking on the exams as a way to learn what additional help the top banks might need.
Officials said back then that the banks would learn how much extra capital regulators wanted them to have, and then the firms would have six months to raise that amount in the private market or could tap a new government capital facility.
Since then, the market appetite for the results has reached a fever pitch, forcing the Treasury Department to rethink its plan to keep detailed results of individual banks private.
A Treasury spokesman did not respond to a request for comment.
"We're now talking about a process that's as much a public relations exercise as it is divulging information regarding the financial health of the 19 largest banks," said Kevin Petrasic, who served at the Office of Thrift Supervision from 1989 to 2008 and is now an attorney at law firm Paul Hastings in Washington.
The government gave their preliminary results to the banks last Friday, and regulators are now negotiating the results and any capital recovery plans with the banking companies.
One point of contention is how to disclose information that is supervisory in nature and not generally designed for market consumption.
Petrasic says many times the information that examiners work with is specific to an institution's portfolios and should not necessarily be used to gauge the health of the banking system.
"Once you try to take that information and extrapolate it, it gets very complicated and it's dangerous," he said.
The institutions undergoing stress tests include Citigroup Inc (C, Fortune 500), Bank of America (BAC, Fortune 500), Goldman Sachs Group Inc (GS, Fortune 500), JPMorgan Chase & Co (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500), MetLife Inc (MET, Fortune 500), Wells Fargo & Co (WFC, Fortune 500), PNC Financial Services Group Inc (PNC, Fortune 500), US Bancorp (USB, Fortune 500), Bank of NY Mellon Corp (BNY), SunTrust Banks Inc (STI, Fortune 500), State Street Corp (STT, Fortune 500), Capital One Financial Corp (COF, Fortune 500), BB&T Corp, Regions Financial Corp, American Express Co, Fifth Third Bancorp, KeyCorp and GMAC LLC.
