U.S. banking regulators on Monday pledged to provide more capital to banks as needed and keep large institutions viable through a new capital assessment program to be launched on Wednesday.
“The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses,” the regulators said in a statement issued by the U.S. Treasury that named no individual banks.
“The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth,” the regulators said. “Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.”
The program to be launched on Wednesday — the Capital Assistance Program — was announced on February 10 by U.S. Treasury Secretary Timothy Geithner as part of a larger bank rescue plan that will include the creation of a public-private partnership to mop up toxic assets on bank books.
Under the Capital Assistance Program, regulators will conduct “stress tests” to evaluate the potential capital needs of major U.S. banks should the economy perform more poorly than expected.
“Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital,” the regulators said. “Otherwise, the temporary capital buffer will be made available from the government.