Bernanke: No Bank Nationalization

Federal Reserve Chairman Ben Bernanke dispelled rumors about nationalizing the U.S. banking system when he testified before congressional leaders on Capitol Hill Tuesday. Bernanke said nationalization of major financial institutions isn't needed to ensure their viability, and could even erode their business value.
Bernanke told members of the Senate Banking Committee, ""We don't need majority ownership to work with the banks. I don't see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when that just isn't necessary.""
Bernanke's comments come as talks of nationalization quickly surfaced this week amid reports that the government may take as much as a 40 percent ownership stake in the struggling ""Citigroup, Inc."":http://dsnews.comindex.php/home/news_story/2595 The idea of temporary nationalization has even been broached by leading lawmakers, including Banking Committee Chairman Sen. Christopher Dodd (D-Connecticut).
In his testimony, Bernanke also emphasized that the stress tests regulators will begin conducting this week on the nation's 20 largest banks won't be pass-fail. Instead, he said, the goal is to assess just how much capital the banks will need to continue running soundly. Bernanke also told lawmakers that the central bank is focused on efforts to aid private markets, such as a loan program to boost consumer lending and purchases of mortgage-backed securities (MBS).
Bernanke also reiterated the Fed's latest economic forecasts released last week, which put the unemployment rate at the end of 2009 between 8.5 percent and 8.8 percent, compared to a 7.6 percent unemployment rate reported in January. The economy is expected to contract 0.5 to 1.3 percent this year, before recovering between 2.5 and 3.25 percent in 2010, and the Fed says that a biggest worry now is deflation, not inflation.
Bernanke presented lawmakers with a definitive picture for recovery: fix the banks first, and economical growth will follow. He told the Senate Banking committee, ""If there is one message that I'd like to leave you with, if we're going to have a strong recovery, it has got to be on the back of a stabilization of the financial system. It is black and white. If we don't stabilize the financial system, we're going to flounder for some time.""
Financial companies' stocks led a rally in U.S. markets following Bernanke's testimony. According to the _""New York Times"":http://www.nytimes.com_, the news that regulators are not planning on nationalization eased some investors concerns about the country's banking system. The Dow Jones industrial average, coming off its lowest levels since 1997, rose more than 235 points, up 3.3 percent. The Standard & Poor's 500-stock index jumped by 4 percent, by 30 points.