Big banks face 'stress tests' from regulators

WASHINGTON (AP) - The Obama administration hopes to restore confidence in the nation's ailing financial sector by subjecting 19 of the largest banks to "stress tests" that will gauge whether each institution has adequate capital to survive a severe downturn.

Banks that need new funds will be given six months to obtain it from the private sector or, failing that, from the federal government's $700 billion bank rescue program, the Treasury Department said Wednesday.

Treasury officials said the new support will be provided through the government's purchase of preferred shares of the bank stock that are convertible into common shares at a 10 percent discount to their price before Feb. 9.

The option to convert the preferred shares into common shares is a change in the rescue program designed to give the government greater flexibility in managing its assistance.

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Home sales sink unexpectedly, lowest since 1997

WASHINGTON (AP) - Sales of existing homes sank unexpectedly last month to the lowest level in nearly 12 years as potential buyers worried about their jobs and awaited details of President Barack Obama's plans to stabilize the housing market.

Sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million in December, the National Association of Realtors said Wednesday. It was the weakest showing since July 1997. And some analysts don't see sales bottoming out until later this year as prices sink further. Economists had expected sales to rise to an annual pace of 4.79 million homes.

The median sales price in January plunged to $170,300, from $199,800 a year earlier and $175,700 in December. It was the lowest price since March 2003 and the second-largest drop on record.

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Stocks end down as week's back-and-forth continues

NEW YORK (AP) - Wall Street showed a little resilience as investors got answers to some of their questions about banks.

The major indexes closed down about 1 percent Wednesday but recovered from much steeper losses early in the day, continuing the volatile trading that has buffeted the market this week.

Stocks initially fell on growing pessimism about the banking industry and a home sales report that came in weaker than the market expected. But as the day wore on, some of the uncertainty about the troubled banking system lifted when the Treasury Department said it's beginning to "stress test" the banks. The test will use two economic scenarios to measure banks' health, and the process is expected to be done by the end of April.

The government also gave the market some reassurance by confirming that it will buy preferred shares from banks that can be converted into common shares.