On February 25, 2009, the UST announced the terms and conditions of the Capital Assistance Program (“CAP”). Under CAP, the federal banking regulators will conduct “stress tests” to evaluate the capital needs of banks with in excess of $100 billion in assets. These “stress tests” have been much discussed with regard to what approach UST will take if it determines that such institutions need additional capital and such capital is not forthcoming from private sources.
What has not been discussed is how the bank regulators will evaluate banks under $100 billion in assets on a going-forward basis. Stress testing of loan portfolios and liquidity sources that yield positive results will assist those facing regulatory pressures. For others, however, such testing will exacerbate regulatory presumptions of a financial institution’s problems. Unfortunately, there is becoming less choice here.