NEW YORK/WASHINGTON - U.S. banks have been told to keep quiet for now about results of a sweeping regulatory checkup into their health, raising questions about whether investors are being wrongly kept in the dark.

Government officials have been less than clear about how the results of these stress tests of 19 big banks will be released.

In the meantime, the Treasury Department and Federal Reserve have asked banks not to discuss the exams publicly out of concern that information will trickle out inconsistently and create market chaos, according to a source familiar with the talks between the government and the banks.

But some experts complain there is too much secrecy surrounding the tests, which are designed to determine whether the banks would be able to weather a steeper economic downturn.

They say banks should release results as they learn them, because anything else goes against traditional disclosure rules that govern what companies must tell investors.

For 75 years, we have had a regulatory philosophy that investors need information, said Robert Hillman, a securities law professor at the University of California at Davis. We are now turning that on its head, and saying investors won't know how to use information they do get.

Banks are getting mixed messages from regulators about whether the stress tests should be considered a bank examination, which is not permitted to be disclosed, or a material event, which triggers a disclosure requirement, according to an industry source.

A material event typically is something sufficiently important that a reasonable investor would want to know about it, said Jill Fisch, a law professor at the University of Pennsylvania who specializes in securities issues.

She said it can be tough to draw the line to show when disclosure is necessary when dealing with soft information, such as merger talks, interim results of a clinical trial at a drug company or in this case, preliminary information about the financial tests that big banks are required to undergo.

But she said the information typically should be made public if the issue is important enough, and that recent experience has shown that more disclosure rather than less is better when it comes to banks.

We did get into this mess because we had a lot of sloppiness in the way financial institutions and others were required to disclose their values and models and risk, she said. Going forward that can't be a good thing.


The stress tests, announced in February, were designed to see if banks are adequately capitalized. Banks that are found to need more money would then have six months to raise it, or take funds directly from the government in a new round of capital injections.

The Treasury Department is expected to release summary results of all of the stress tests some time after earnings season concludes for most big banks on April 24.

The regulators are also drafting a concept paper that will explain the framework for the stress tests and spell out how to interpret the aggregate results, the source familiar with the discussions on the stress tests said. The person requested anonymity because the talks are not public.

With earnings season now under way, the source said Treasury and Fed officials have asked banks not to talk about the tests in their quarterly reports. One concern is that banks that already have completed their internal versions of the tests -- and proved they do not need a capital infusion -- will want to include that information as part of their earnings releases.

Regulators worry that investors then would demand that other banks disclose their findings, causing confusion in the market if the results are not all reported in a standard form.

References to the stress tests in corporate announcements have been brief. Insurer MetLife Inc, for instance, confirmed in a news release on Monday it is participating in the stress test program but did not discuss details.

Also on Monday, Goldman Sachs Group Inc said it wanted to use the proceeds of a $5 billion stock sale to help repay $10 billion of government funds if permitted by our supervisors and if supported by the results of the stress assessment.

While not discussing the test itself, Goldman's announcement of the share sale -- combined with a higher-than-expected quarterly profit -- suggests to some that the company is having no trouble satisfying the test requirements.

Many analysts do not expect Goldman to run into trouble with stress tests because most of its assets are already on its books at their market price, meaning the bank does not have to take the same writedowns as many of its competitors.

A Goldman spokesman told Reuters that the language the company used in its announcement was required by regulators, with the company unable to comment any further about the stress test or speculate about its outcome.

Stock analyst Kevin Fitzsimmons, of Sandler O'Neill & Partners LP, said a lack of disclosure about these tests might keep some investors on the sidelines as they evaluate banks.

Over the last several days, banks have been sharply down and up, he said. With a void in information, it could create even more volatility based on what the sentiment of the day is.

But investors may be left with a confusing jumble of information if they are given preliminary results that are later changed as the government finalizes its findings on the new tests, said attorney Evan Stewart of law firm Zuckerman Spaeder LLP.

This is such a new process that they are still testing the stress test itself, he said. It's better to be quiet rather than release incomplete information that may be misleading.