Ten US banks fail Geithner's stress tests

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WASHINGTON, DC - Ten US banks have failed Treasury secretary Tim Geithner's stress tests - requiring a combined $74.6 billion (£50 billion) recapitalisation.

Bank of America - crippled by its Federal Reserve-encouraged Merrill Lynch takeover - is worst affected, needing an extra $33.9 billion to pass the tests. Next is Wells Fargo, which reportedly requires a further $13.7 billion to satisfy the regulators.

"Our hope with today's actions is that banks are going to be able to get back to the business of banking," said US Treasury Secretary Timothy Geithner, whose stress tests were designed to see whether banks have sufficient capital should the recession deepen.

GMAC, the financial part of General Motors, requires $11.5 billion. Citigroup needs a further $5.5 billion of funds, while Morgan Stanley needs to find $1.8 billion. Regions Financial has been told to raise $2.5 billion, while SunTrust Banks needs $2.2 billion. KeyCorp must find $1.8 billion, Fifth Third Bancorp requires $1.1 billion, and PNC Financial Services needs $600 million.

Bank of America has already received $45 billion in government funding through the Troubled Asset Relief Program (Tarp), after Merrill Lynch paid $4 billion in executive bonuses early and then swiftly announced $15 billion in losses in the final quarter of 2008.

The 19 banks stress tested by Treasury and Fed supervisors represent two-thirds of the total assets of the US banking system and the majority of credit for the entire US economy.

Analysts broadly welcomed the initiative - dispelling concerns about the need for future nationalisations - but have also asked whether the tests were strict enough, and cautioned that they take no account of the effects of the differing business models in place at the banks under scrutiny.

The banks have until June 8 to come up with finalised plans for how to raise the capital. Geithner has suggested that most of the banks would raise the money privately, rather than by seeking state funding.