updated 5/11/2009 8:53:26 PM ET 2009-05-12T00:53:26

The government’s unprecedented “stress tests” of the nation’s 19 largest banks should bolster Americans’ battered confidence in U.S. banking system, Federal Reserve Chairman Ben Bernanke said Monday as he defended the rigor of the exams.

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The much-anticipated results, released Thursday, showed that 10 banks — including Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. — must raise a total of $75 billion in new capital to absorb potential losses if the recession were to take a turn for the worst.

The remaining nine — JPMorgan Chase & Co. and brokerage house Goldman Sachs Group Inc. among them — had enough capital to withstand a deeper recession.

“We hope and expect that the public and investors will take considerable comfort from the fact that our largest financial institutions have been evaluated in a comprehensive and rigorous fashion,” Bernanke told a Fed conference on financial markets held at Jekyll Island, Ga.

Wall Street did get a boost last week as the stress tests helped to push prices for bank stocks higher. However, that rally fizzled out on Monday as bank shares dragged the market lower.

Regulators determined that four of the banks — U.S. Bancorp., Capital One Financial Corp., BB&T Corp. and Bank of New York Mellon Corp. — were sound enough to survive a deeper recession. Those institutions announced Monday that they planned to issue stock to help repay money the government doled out last year to shore up the nation’s banking system.

While that’s a good sign that banks can again turn to Wall Street to raise money by selling stocks, the reality of extra shares pouring into the market weighed on financial stocks.

Bernanke said it would take time to evaluate whether the stress-test process helps to reduce the uncertainty that has hung over investors and the economy about banks’ future losses and capital needs.

“However, the initial indications are encouraging,” he said.

Each of the 10 banks requiring an extra capital buffer against potential losses has pledged to have this additional cushion in place by a Nov. 9 deadline, Bernanke said.

Many banks are already “well ahead” in finding private-sector options for increasing their capital base by selling shares and several have announced plans for new stock issues, he added. And, several banks have announced plans to issue long-term debt not guaranteed by the Federal Deposit Insurance Corp., another positive sign, Bernanke said.

“We hope that in two or three years we will be able to reflect on the banking system’s return to health with a sharply diminished reliance on government capital,” Bernanke said.

The Fed chief also defended the soundness of the bank exams, saying estimates regulators used to determined the needed capital buffers were “appropriately conservative.” Some Wall Street analysts have questioned whether the tests were rigorous enough.

Going forward, lessons learned from the stress tests should help guide the government’s process of overseeing banks, Bernanke said.

“It was an enlightening exercise that will improve the tool kit we use to help ensure the safety and soundness not just of individual firms but of the financial system more broadly,” he said.

Bernanke once again stressed the need for banking supervisors to not only assess the health of individual banks but to evaluate the soundness of the banking system as a whole.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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