Four banks with major operations in the Chattanooga region, including the two with the most area branches, need to raise more money, the government said Thursday.
Among the 19 biggest financial service companies tested to see how they could handle more economic stress, the Federal Reserve found 10 were inadequately capitalized. Collectively, the government says the banks need another $75 billion to withstand losses if the recession continues to worsen.
The Federal Reserve's findings show the financial system, like the overall economy, is healing but not yet healed.
"Looking at the big picture, you can say that things aren't so bad for the financial industry as a whole," said Kevin Logan, chief U.S. economist at investment bank Dresdner Kleinwort.
But Mr. Logan said attracting fresh capital will be a challenge for banks that need it.
"The banking industry is not going to make a lot of money going forward, and that's a dilemma for keeping banks solvent and getting them lending," he said.
The tests found that Atlanta-based SunTrust Bank, the biggest bank in metro Chattanooga with 29 local offices, needs another $2.2 billion. The Birmingham, Ala.-based Regions Financial Corp., which operates 27 branches in metro Chattanooga, needs to raise $2.5 billion.
Other regional banks with major operations in Southeast Tennessee and Northwest Georgia such as First Tennessee and Synovus Financial Corp. were not big enough to be included in the Federal Reserve's stress tests released late Thursday.
The Charlotte, N.C.-based Bank of America, the nation's third-largest banking firm, had the biggest capital needs, according to the Federal Reserve. Bank of America, which operates five offices in the Chattanooga area, needs nearly $34 billion more in capital.
Regions said in a statement that it "questions whether it should be required to raise additional capital," claiming it has $5 billion more than the regulatory minimum. But Regions officials also pledged to raise another $2.5 billion to meet the Federal Reserve stress test requirement without further direct federal investment in the bank.
Bank of America's CEO Ken Lewis also said he is "comfortable" with his bank's current capital position and said the bank is working on a plan to shore itself up.
"While it would have a number of components, we will not need any new government money," Mr. Lewis said.
The second biggest capital need is for Wells Fargo, the San Francisco bank that bought the Charlotte-based Wachovia in December and needs another $13.7 billion, according to the Fed.
The major Southern banks are suffering primarily from residential and commercial loans losses from faltering markets in Florida, California and other coastal areas. Although loan losses have been less in Chattanooga, banks are having to tighten credit throughout their organizations to limit future loan losses.
But one of the Southern regional companies tested by the Federal Reserve - BB&T Corp. in Winston-Salem, N.C. - came through the tests without being required to raise new money.
Government officials hope the tests will restore investors' confidence that not all banks are weak, and that even those that are can be strengthened. They have said none of the banks will be allowed to fail.
The banks that need more capital will have until June 8 to develop a plan and have it approved by regulators.
Some of the firms that need more capital already are announcing their strategies. Morgan Stanley, which the government says needs $1.8 billion in new capital, said it plans to raise $5 billion, including $2 billion in common stock.
Wells Fargo & Co., the fourth-largest U.S. bank, announced on Thursday a $6 billion common stock offering.