• The Atlanta Journal-Constitution
  • May 7, 2009

How the stress test affects your bank

By Péralte C. Paul

Q: My bank was among those told to raise additional capital. Are my deposits at risk?

The Federal Deposit Insurance Corp. guarantees your deposits and some bank-issued retirement accounts up to $250,000. If your bank participates in the FDIC’s Temporary Liquidity Guarantee Program, your non-interest-bearing and low-interest-bearing accounts (earning less than half a percent) will have unlimited FDIC coverage.

Q: I own shares in a bank that needs more capital, according to the stress test criteria. Of the options available to the bank, which would have the greatest impact on shareholders?

The most useful and most popular option would be creating and selling more shares, which would be the least popular with shareholders, said Ted Parrish, director of investments at Kennesaw-based Henssler Financial Group. The bank could convert the government’s “preferred” shares to “common” shares but that dilutes the current common shareholders’ interest by raising the number of outstanding shares. The bank could issue bonds, but market demand is weak.

Q: Will banks that did well on the stress test make more loans?

Probably not, said Charles E. Osborne, managing director of Iron Capital Advisors, an Atlanta investment advisory firm. Banks typically pool loans and sell them to outside investors. Banks are having a harder time selling those loan packages, and the stress test results are unlikely to change that.