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Investigators warn bank stress tests should be repeated

WASHINGTON — A government test of whether 19 major banks could survive a further downturn in the economy may have relied on too rosy a scenario and should be repeated, independent investigators say.

In a report released Tuesday, the Congressional Oversight Panel for the government's $700 billion financial rescue effort found that the Federal Reserve used a "conservative and reasonable" approach to assessing the health of the nation's biggest banks.

But, the panel added, the Fed's worst-case scenario does not go far enough. For example, the "stress tests" conducted by the Fed were based on the 2009 unemployment rate average of 8.9 percent. Unemployment in May climbed to 9.4 percent.

Executive pay: Nearly three months after American International Group bonuses provoked an angry reaction in Congress, the Obama administration is ready to issue new regulations limiting the compensation of top executives at financial institutions that have received government rescue funds. The regulations, expected as early as today, would apply to the 20 most highly compensated employees at financial firms that obtained infusions of $500 million or more in assistance from the $700 billion Troubled Asset Relief Program.

Fed Reserve subpoenaed: A House investigative committee has subpoenaed the Federal Reserve to hand over e-mails, notes and other documents related to its role in Bank of America's acquisition of Merrill Lynch & Co. At issue is whether the Fed, along with the Treasury Department, pressured Bank of America into buying Merrill Lynch. The Fed and former Treasury Secretary Henry Paulson have denied doing so. The Federal Reserve said it would cooperate.

Investigators warn bank stress tests should be repeated 06/09/09 [Last modified: Tuesday, June 9, 2009 9:55pm]
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