The Treasury's Capital Assistance Program, which was announced on February 10 and will commence this week, calls for "stress tests" of banks receiving government bailout funds. These tests, which basically will assess the capital strength of banks, have already had a galvanizing effect on the industry. All the talk of prodding the government to accept more common shares--up to 40 percent--seems to have originated from the imminence of these tests. It's as if banks are saying, without the added capital cushion, the results are going to be ugly. Given that outlook, they're willing to dilute the heck out of existing shareholders.

The government may have no choice but to agree to the idea. Some reports have indicated they already have in concept. Tim Geithner pledged this: "The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses." 

For more:
- here's a Reuters article

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