Nationalization of U.S. Banks Not Necessary, Says Bernanke

Mortgage Net Daily ^ | 022409 | Erik Kevin Franco

[Fred]

Federal authorities do not see any advantage to nationalizing large banks since a return to profitability can be achieved through a combination of strong regulations of how rescue funds are used, and greater transparency on financial institutions, according Fed Chairman Ben Bernanke.

During his semi-annual testimony to the U.S. Banking Committee on Tuesday, Bernanke said the U.S. economy cannot recover without a stabilization of the financial system, pointing to the failure of Franklin D. Roosevelt's New Deal, which failed to stabilize the financial system.

In addition to the previously announced public-private sector partnership between government and large financial institutions and an expansion of the Term Asset-Backed Securities Loan Facility (TALF), Bernanke said regulators are going to conduct a series of "stress testing" over a two-year period to determine which firms need to bolster capital requirements.

The government would then issue preferred shares to the firm, which would be converted into common shares until losses from the stress test actually occur, Bernanke explained.

Bernanke also said the U.S. government does not plan on taking majority stakes in financial institutions and therefore would not technically own them.

In an interview on the CBS Early Show on Tuesday, FDIC Chairperson Sheila Bair alluded to stress testing the financial system to determine the capital needs of institutions.

She also said the creation of a so-called "aggregator bank" is in the works for the near future but warned that a quick fix is not possible given the current conditions in the United States.

The Treasury's plan contains all the components of previous financial recoveries and, if properly administered, could help stabilize the financial system, Bernanke said.

He also said the Fed is both prepared and willing to keep the option of buying longer term U.S. Treasuries open as a means of stimulating the financial system if necessary.

In the meantime, the Fed is broadening existing facilities to promote credit markets, and the expansion of the TALF will come "soon", he added.

[mnehring]

Of course not.. they are looking for a new paradigm, not quite nationalism, not quite socialism, they are going to call it national socialism.

[txnativegop]

Aggregator bank?? WTF? Is it to be used to take over the other banks? Do these people think before they speak or even bother to think in the first place?

[goodnesswins]

NO...they think we are all as stupid as the people who voted for them....

[txnativegop]

these people seem to be academics that have no real world experience.

[Logical me]

And all this because of brain dead dumb Americans that believed this Communists Obama and they still do not seem to get it. How did they become so damn dumb?

[Oldpuppymax]

The left does whatever increases its power. That, to them, IS necessary!

[remaxagnt]

trust me fellow freepers there will be no nationalizing of banks!!! it just cant happen there is too much risk of major fallout with the derivatives these banks have which would cause all of them to fall if we just nationalize one of them. it wont happen thats why they didnt do it already.

[JasonC]

Aggregator bank means an RTC like parking place for impaired assets. Existing banks would sell loans to it, probably for something above their current (ridiculously depressed) market prices, and thus free their own balance sheets of the assets whose continual write downs to lower and lower figures are causing their ongoing losses and inability to lend. The aggregator would let the assets run off, realizing whatever it can, triage the loans and sell off better performing ones to private investors, etc. And if it runs a loss, the taxpayer covers it. It is a way to get bad asset gunk out of the rest of the banking system, rather than shoveling taxpayer money into that system to paper over each loss.