Stress Tests: What To Expect

Whatever the case, it's clear the banking sector as a whole won't be in great shape. As Capital's analysis shows, even after Treasury injected some $200 billion into ailing banks in the last quarter of 2008, tier 1 capital (that's the good kind) only rose by about $20 billion. That means that all that TARP money really only helped the banks tread water, as they continued hemorrhaging from write downs on those wacky sub-prime related securities. In the coming months, the losses will be more plain vanilla -- in the form of good old fashioned defaults. That won't, of course, make them any less painful.

Capital predicts that under the most negative economic scenario (I'll spare you all the data points, but the upshot is that it isn't that unlikely) the loan default rate is going to rise from 1.9 percent last year, to 3 percent this year. That's really high. And it would reduce remaining tier 1 bank capital by about 56 percent. Banks are very unlikely to be able to make it up in their earnings (as we've blogged previously, much of that is smoke and mirrors anyhow). Upshot: at least some of those 19 bank CEOs are likely to be headed back to Washington with their hats (and if they have any PR acumen, their Amtrak tickets) in hand. Let's hope the $100 billion in Treasury money still sitting round will be enough to cover them.