Friday, February 20, 2009

Fed President Lockhart: Bank nationalization unlikely

Atlanta Fed President Dennis Lockhard doesn't expect the U.S. to nationalize banks:
Nationalizing banks is "substantially" off the table, Federal Reserve Bank of Atlanta President Dennis Lockhart said following a speech in Alabama.

Speaking to reporters after his speech, Lockhart said he was "unaware" of any serious consideration of bank nationalization. ...

Lockhart said correctly valuing assets is a central challenge to fixing banks and that the Treasury is not ruling out guarantees of toxic assets.
Fed Chairman Ben Bernanke also opposes nationalization, but does see it as a possible temporary option:
Ben Bernanke, the chairman of the Federal Reserve, expressed skepticism Wednesday about the prospect of nationalizing troubled banks and suggested that President Obama’s administration would much prefer to keep financial institutions in private hands.

His comments, at a luncheon at the National Press Club, came shortly after his predecessor, Alan Greenspan, told The Financial Times that temporary nationalization of some banks might be the “least bad solution” to the current banking crisis. Many were surprised that Mr. Greenspan, long a fan of self-regulation in the financial sphere, would even suggest such a move.

“As a general rule, it’s very challenging for governments to manage banks for a protracted period,” Mr. Bernanke said Wednesday after being asked about Mr. Greenspan’s comments, The Charlotte Observer reported.

Later, he added: “Whatever action would need to be taken at one point or another, there’s a very strong commitment on the part of the administration to keep banks private and return them to private hands as quickly as possible.”
A temporary nationalization would be as bad for shareholders as a semi-permanent nationalization. For the economy as a whole, semi-permanent nationalization would be far worse. Treasury Secretary Tim Geithner is also known to oppose nationalization. My guess is even temporary nationalization is off the table as long as a bank is solvent. If a bank becomes insolvent, then something needs to be done.

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