Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

According to inside reports, the original estimates caused consternation in banking circles. Bank of America faced a call for $50 billion in extra capital. Citigroup was called on to raise $35 billion. Wells Fargo was so dismayed at the initial ask of $17 billion that it threatened a lawsuit. In the end they settled on a bargained compromise. By far the biggest burden was imposed on Bank of America, which was required to raise $33.9 billion to exit the emergency ward. Wells Fargo’s quota was set at $13.7 billion. As its senior financial officer commented: “In the end we agreed with the number. We didn’t necessarily like the number.”26 Ailing Citigroup had more reason to be satisfied. By allowing for future revenue streams, its capital requirement was massaged down to a modest $5.5 billion, a seventh of the original figure.27 It was barely more than the bank would pay out in bonuses that year. After weeks of haggling, on May 7, 2009, the public was informed that America’s big banks needed to raise a manageable total of $75 billion. The stress tests were a balancing act that began with an exercise in accounting precision and ended in a game of bargaining and confidence.28 Whether they were taken in or simply delighted to discover how helpful the Treasury and the Fed were being, the markets responded well. The spread between very safe AA corporate bonds and the price that banks paid to borrow on their Baa bond rating fell from 6 percent to 3 percent, reducing funding costs. T...

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