U.S. may urge BofA and Citi to up capital

The shortfall amounts to billions of dollars at BofA, the paper said on Tuesday, citing people familiar with the bank, adding it is likely the Federal Reserve will have determined other banks might also need more capital.

The report sent Frankfurt-listed shares in Bank of America (BAC.F) and Citigroup (TRV.F) down more than 7 percent and hit global stocks, already shaken by fears over the spread of swine flu.

European credit spreads widened, government bonds surged as investors sought safe-haven assets and the dollar hit a near five-week low against the yen.

"The U.S. stress tests are absolutely critical to where we are going. Not only are they crucial for share prices to work out how much dilution or not may come through, but the tests have also been introduced to try to improve the credibility of the system," said Huw van Steenis, Morgan Stanley banking analyst in London.