June 9 (Bloomberg) -- Regulators should continue to conduct stress tests on banks as long as the financial institutions keep large amounts of illiquid mortgage securities on their books, a group overseeing the U.S. financial bailout said.

The Congressional Oversight Panel, in a report issued today, also said the Federal Reserve should release more information about the exams, including some non-public results and additional details about the methodology. The Fed and other regulators tested the biggest 19 banks earlier this year, announcing in May that 10 of the lenders needed an additional $74.6 billion in capital.

While the report found the reviews “conservative and reasonable,” the oversight board said it had some “serious concerns” because the criteria used to assess the banks remained opaque. Bank exams are traditionally kept confidential.

“The Federal Reserve Board should be commended for releasing an unprecedented amount of bank supervisory information, but additional transparency would be helpful both to assess the strength of the banks and to restore confidence in the banking system,” the committee wrote.

In particular, the report said, the Fed should release more details about the methodology so that analysts can apply it to other financial companies or different economic scenarios.

$700 Billion

Headed by Harvard Law Professor Elizabeth Warren, the oversight board was set up under the $700 billion bailout law passed in October.

The Treasury Department today announced that a group of the 19 banks that faced the stress tests, including Goldman Sachs Group Inc. and Morgan Stanley, were cleared to buy back $68 billion of shares the government purchased through the Troubled Asset Relief Program.

Fed Governor Daniel Tarullo, speaking in Washington yesterday, called the stress tests “an unprecedented exercise in an unprecedented situation.”

Still, he said the central bank will incorporate lessons from the reviews into routine bank exams.

Today, in testimony before the Joint Economic Committee, Warren said her oversight board “pressed really hard on the Fed” for more details on the stress tests, but was rebuffed. The Treasury under Secretary Timothy Geithner has been more open, Warren added.

She also told lawmakers that giving the panel subpoena power would make it easier to obtain documents and testimony from Treasury and Fed officials.

Representative Kevin Brady, a Texas Republican, told Warren that the panel should be “abolished” because its monthly reports have “provided very little value or insight” and it has only held one hearing with a Treasury Department official.

Another committee member, Democratic Representative Elijah Cummings of Maryland, backed Warren’s group.

“The last thing I want to do is abolish oversight,” he said. “That’s the thing we need the most.”

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.

Last Updated: June 9, 2009 14:32 EDT