State Street passes the Fed's stress test

More tools may be needed. B8

The results of the test, released late yesterday, found that 10 banks and Wall Street firms collectively need to raise nearly $75 billion in new capital under the worst-case scenario applied by banking regulators. Bank of America Corp. was told to raise the most, at $34 billion. Wells Fargo & Co. needs to raise $13.7 billion, while auto lender GMAC needs $11.5 billion in fresh capital. Citigroup Inc. needs to raise $5.5 billion.

The regulators emphasized that none of the institutions are insolvent.

In a stress test, regulators subject financial institutions to a set of scenarios to determine if the companies can withstand unexpected calamities. For the 19 institutions, regulators created scenarios in which each had a hypothetical 9.1 percent loss rate on loans - for two straight years. This two-year loss rate is higher than any institution has experienced since 1921, including during the Great Depression. Federal Reserve chairman Ben S. Bernanke called the examination regulators put the banks through "unprecedented in scale and scope."

US Treasury Secretary Timothy Geithner said he expects the test results to instill more confidence in the financial system. "We hope banks are going to get back to the business of banking," he said at a news conference yesterday.

The banks that need capital have until June 8 to develop a plan, and then six months to raise the funds. Most have told the government they intend to raise the money from private sources, but the Treasury has said it will make additional government funds available if need be.

State Street received $2 billion of taxpayer money in the first wave of capital infusions to the financial sector from the government last fall. It has been facing criticism over billions of dollars in troubled loans and investments on its books.

The company hailed its test results as a vote of confidence.

"We're very pleased to have passed this important supervisory test by a wide margin," State Street's chief executive, Ronald E. Logue, said in a statement. Even under the test's "more adverse" stress assumptions, the financial services giant's capital levels were "well in excess" of required ratios, he said.

Logue noted that State Street is now positioned to consider repaying the government's $2 billion. Logue has previously said the company is eager to repay the funds, which came with government scrutiny and caps on executive compensation and requires large interest payments.

Bank of New York Mellon Corp., which has a large Boston presence, also was found to have adequate capital.

Beth Healy can be reached at bhealy@globe.com.