Despite the cautious optimism creeping into the financial markets following the U.S. bank stress tests, Standard & Poor’s Ratings Services says it believes that banks are far from a recovery, and the banking crisis has merely entered a new phase.

The rating agency notes that it’s still difficult to predict how long this latest phase will last. But it notes that Tanya Azarchs, a managing director at Standard & Poor’s told a recent seminar that “there’s nothing to say that this banking crisis can’t go on for another three or four years.”

She noted that one thing is clear, and that is that banks will have a tough time surviving unless they have, “more capital than even Basel envisioned.” For now, many do, thanks to government support, and, “there is no indication in our view that the support is waning,” said Scott Sprinzen, also a managing director at S&P.

S&P points out that the U.S. banking regulators’ stress tests found that that 10 of the 19 largest banks need a total of $75 billion in capital, which is much more than the $18 billion that it estimates the banks need based solely of credit stress testing. “Despite the significantly higher capital requirements determined by the Fed’s stress tests as compared to our stress tests, we do not see this as an unmanageable amount, and most management teams of the identified banks promptly issued statements about how they would raise the capital,” it says.

The Fed’s stress test has been just another step toward the eventual recovery of the global financial industry, S&P adds, but it cautions that the industry still faces challenges presented by trends such as: industry risk creeping higher rather than stabilizing; larger losses during the downturn than the industry expected when it began; the increased importance of franchise stability and market confidence as components of credit; and the greater focus on capital adequacy; among other factors.

IE