U.S. lays groundwork for bank stress test release

By Mark Felsenthal and Karey Wutkowski

WASHINGTON (Reuters) - U.S. regulators on Thursday released some details about their bank "stress tests," moving to bolster the credibility of a process some investors worry might not reveal the financial sector's true health.

An official at the Federal Reserve said on Thursday that results of the tests, designed to see how the nation's 19 largest banks would fare should the U.S. recession prove unexpectedly severe, would be made public on May 4.

Regulators will try to prove the rigor of the tests by releasing a document on April 24 that will explain the underlying assumptions, the official said. The document will outline the methodologies employed and serve as a guide on how to interpret the results.

The test results will include a capital recovery plan for banks that regulators determine would be short of capital if the economy's downturn gathered steam and unemployment shot unexpectedly higher.

Experts say the results must be believable and the recovery plans clear, or officials risk further destabilizing the financial system in a way that will send the weaker banks into a downward spiral.

"There is a lot at stake," said Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution, a Washington think tank. "It's going to be important that this is viewed as a test that really has validity."

Regulators have not made final decisions on how to present the results, the Fed official said. Regulators will disclose at least some of the information, but no decision has been made on whether banks themselves will disclose some as well.

The official, who requested anonymity because the tests are still in process, added that the goal is to ensure that all the results are presented on a comparable basis.