Bernanke firm against bank nationalisation

26 February 2009

The US Federal Reserve chairman Ben S Benanke reiterated his stand on anti-nationalisation at the House Financial Services Committee hearing in Washington yesterday saying that the US government may take 'substantial' stakes in Citigroup Inc and other banks, but would not go for a full-scale nationalisation.

Bernanke told lawmakers, "We are not planning to 'seize' a company, or 'zeroes out the shareholders and manage and run the bank' ". In his testimony before the Congress on the previous day, too,  Bernanke denied any idea of nationalisation of banks.

There were fears in Wall Street that the government may put forward a nationalisation plan after treasury secretary Timothy Geithner's financial- rescue plan.

Regulators set a six-month deadline for the biggest 19 US banks to raise any new capital deemed necessary after a review of their balance sheets. The regulators will complete their so-called stress tests, which is scheduled to begin on Wednesday, by the end of next month, the Treasury said.

The Obama administration began new ''stress tests'' last week, with regulators visiting major banks to gauge how they'd hold up if today's recession became a full-blown depression. Nationalisation advocates such as Dr, David Posen think that this exercise is simply the Treasury Department laying the groundwork for bolder action, such as seizing banks in the months ahead.

The Treasury, however, said banks will have a choice of raising private capital or accepting taxpayer funds from the Treasury. Any new government money will come in the form of convertible preferred securities, which would acquire voting rights if converted into common stock.