WASHINGTON, Feb. 25 (UPI) -- The U.S. Treasury released details of the new Capital Assistance Program Wednesday, stressing the plan would buffer banks from further market deterioration.
The program, which includes mandatory stress tests for the nation's largest banks, provides capital in the form of convertible preferred shares that would allow banks the option of switching the investment to common shares. Such a move would greatly enhance bank ledgers, as preferred shares, while a safer government investment, are counted as loans, rather than investments, on bank books.
Banks with more than $100 billion in assets will be required to undergo computerized tests that measure their resilience to economic change.
The government will test at least 19 banks against a baseline scenario with the gross domestic product declining 2 percent this year, unemployment rising to 8.4 percent and home prices dropping 14 percent.
Upping the stress factor, the scenarios will also test banks against a GDP decline of 3.3 percent, unemployment at 8.9 percent and home prices dropping a hypothetical 22 percent, The Washington Post reported.
"The purpose of the CAP is to restore confidence throughout the financial system that the nation's largest banking institutions have a sufficient capital cushion against larger-than-expected future losses," the Treasury said.
