Economy could begin recovery later this year
Bernanke warns against too much optimism, unemployment likely to continue growing
Kevin G. Hall
Issue date: 5/7/09 Section: Nation and World
Federal regulators on Tuesday gave the nation's 19 largest banks - those with assets of more than $100 billion - the results of the controversial stress tests, which will be made public Thursday. The tests are designed to gauge how the banks would perform under a deeper economic downturn and to establish an additional capital buffer in order to guard against losses amid further turmoil.
Several published reports suggest that as many as 10 of the banks may be forced to raise more capital, a number that Bernanke repeatedly refused to confirm or deny. He did say, however, that he was confident that the 19 banks are healthy.
"I have looked at many of the banks, and I believe that many of them will be able to meet their capital needs without further government capital," he said.
That suggests that many also won't meet their capital needs. Those banks will have six months to raise capital to meet their government-imposed additional buffers or face government intervention. They can seek government help at any point within the six months.
When the banking system returns to a semblance of normalcy, however, any U.S. economic recovery may prove sluggish and uneven.
"Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while," Bernanke said, noting that companies are unlikely to hire for quite some time, "implying that the unemployment could remain high for a time, even after economic growth resumes."
In response to lawmakers' concerns that massive government spending and Fed lending programs could unleash inflation, Bernanke pointed to the slack in the jobs market as a reason that this won't happen.
"It's very hard for serious inflation to take off when you have this kind of slack in the economy," he said, pointing to an accompanying slowdown in wage growth and noting that slack conditions for employment and wages are expected for a protracted period. "It's a serious problem, and even when the economy begins to grow it will take a while for unemployment to come back to an acceptable level."
Several published reports suggest that as many as 10 of the banks may be forced to raise more capital, a number that Bernanke repeatedly refused to confirm or deny. He did say, however, that he was confident that the 19 banks are healthy.
"I have looked at many of the banks, and I believe that many of them will be able to meet their capital needs without further government capital," he said.
That suggests that many also won't meet their capital needs. Those banks will have six months to raise capital to meet their government-imposed additional buffers or face government intervention. They can seek government help at any point within the six months.
When the banking system returns to a semblance of normalcy, however, any U.S. economic recovery may prove sluggish and uneven.
"Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while," Bernanke said, noting that companies are unlikely to hire for quite some time, "implying that the unemployment could remain high for a time, even after economic growth resumes."
In response to lawmakers' concerns that massive government spending and Fed lending programs could unleash inflation, Bernanke pointed to the slack in the jobs market as a reason that this won't happen.
"It's very hard for serious inflation to take off when you have this kind of slack in the economy," he said, pointing to an accompanying slowdown in wage growth and noting that slack conditions for employment and wages are expected for a protracted period. "It's a serious problem, and even when the economy begins to grow it will take a while for unemployment to come back to an acceptable level."
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