Government ready to save qualifying banks

WASHINGTON (AP) — The Federal Reserve on Friday said the government is prepared to rescue any of the banks that underwent “stress tests” and were deemed vulnerable if the recession worsened sharply.

The Fed, in outlining the tests’ methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.

Separately, bank executives were being briefed on their test results in meetings across the country. By law, the banks cannot publicize the results without the government’s permission, but Wall Street buzzed with anticipation, and most financial stocks rose.

The stress tests were designed to gauge how banks would fare during a much worse recession than most economists expect. But the Fed said that a bank needing more capital to cushion against loan losses under its “adverse” economic scenario should not be considered insolvent.

Rather, such a bank — if it could not raise additional money from private investors — could get financing from the Treasury’s bailout fund.