Regulators Pledge To Shore Up U.S. Banks

(CBS/AP)  Federal regulators pledged Monday to do all they can to shore up the struggling U.S. banking system and said they will launch a revamped program to inject fresh capital into financial institutions this week.

The Treasury Department, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Office of Thrift Supervision and the Federal Reserve jointly issued the statement amid growing concern that some of America's biggest banks may need additional assistance to survive the fallout from the worst financial crisis since the 1930s.

The statement did not name any specific banks, or respond to reports that the government was considering increasing its ownership of Citigroup Inc.

The White House just last week downplayed persistent speculation that some banks could be effectively nationalized by the federal government.

"A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery," the regulators said. "The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses."

A revamped program, announced by Treasury Secretary Timothy Geithner earlier this month, to plow federal money into banks in return for giving the government ownership stakes will start Wednesday.

CBS News chief political consultant Marc Ambinder reports that, according to a senior Treasury official, the government's position as portrayed by today's joint statement is "We are not rushing towards nationalization at all."

What the government is considering, says Ambinder, is adjusting its stake in Citi from 25% to 40% by changing the type of shares it owns.

With Citi's stock price under $2, a further drop could drive the bank into a major sell-off, dropping prices even further and forcing banks into nationalization.

"Capital flight requires capital infusion," the official told Ambinder.

Regulators provided some details on that program Monday.

"Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory," the regulators said.

But when asked about reports that the government was considering increasing its ownership of Citigroup, Treasury spokesman Isaac Baker said the department did not comment on conversations with specific banks.

"We've made clear that we will do what is necessary to strengthen and stabilize the financial system so that it can provide the credit necessary to support economic recovery," Baker said in a statement.

The government is open to considering a request to convert preferred shares purchased as part of its $700 billion rescue program into common stock "if the institution and its regulator believe it would promote the long term stability of that institution and we believe it's in the best interest of long term stability of our economy and financial system," Baker said.

The Wall Street Journal reported late Sunday that Citigroup was in talks with federal officials over the possibility of the government expanding its ownership of the struggling bank to as much as 40 percent of its common stock. The newspaper said bank executives hope the stake will be closer to 25 percent.

Later Monday, Geithner will join President Barack Obama and other guests at a fiscal responsibility summit at the White House to discuss how to curb a burgeoning federal deficit laden with Social Security, Medicare and Medicaid obligations.

[masterballs2]

Something bid needs to happen. After eight years of idiot Bush and his band of pea brained Republicans some really steps are going to have to be made to salvage the banking system.

This is what you get when you have a bunch of knuckle dragging Neanderthal thinking Republicans running the system.

Thank God the Democrats are in charge now! There isn%u2019t a Republican with a brain big enough to propose a workable solution to this mess. In fact, they%u2019re too stupid to know that after eight years of their failed policies they have nearly destroyed this country and sucked the US treasury dry while they lied to the world about Iraq. In fact, they couldn%u2019t even do Iraq right either.

The GOP should have a new requirement. That you must have an I.Q. greater than 58 to be a Republican and be able to read.

[nextgenman1]

No, they're not rushing toward Socialist Nationalization, they're on a steady deliberate march...

[ubrew12]

The U.S. nationalizes banks at the rate of two a week. Only, we call it bankruptcy, a takeover by the FDIC, and most of the banks are small. The FDIC takes over management, pays off some of its debt, repackages the bank, and sells it to private investors.

For some reason, the logic behind this doesn't apply to behemoth banks like Citibank and Bank of America, despite the fact that they are similarly insolvent, and that the economy can't recover until they're problems are put behind us. The admin doesn't want rich investors in these banks to take the loss of takeover: and they are willing to risk a deepened recession for the rest of us in order to take care of their 'friends'.

The heck with that: nationalize them, repackage them and sell them to new investors. The current investors will have to pound sand: thats capitalism.

[ubrew12]

why not nationalize failing banks?

What do banks do? They make evaluations of individuals and companies and decide how much investment capital they should get. Most of the 'job' of evaluating a company is done by the stock market and evaluating an individual is not exactly brain surgery.

And banks have done such a horrid job lately, they blew $1.8 trillion on worthless derivatives. If your plumber did such a poor job, wouldn't you fire him?

Yet banks have a state-granted monopoly ability to leverage savings into investment capital, at ratios of 9 to 1 (or above if you're a derivative). We should all be so 'protected' by the state, regarding our product.

Banks live in a protected market, have clearly demonstrated that they are incapable of doing what they do, and ought to be replaced/nationalized.

[win4usa]

By using TRILLIONS of our hard earned money.

[antoniof123]

I don't understand most of you the banks control the money.

The one thing the founding fathers did not want is that much power in the hands of a few and we the American people have allowed it.

I say bust the banks up into small companies do not allow them to grow that big.

If the wealth of a nation is control by a very few then it will lead to problems look at what we have now.

That way everyone wins if they are little and can't control that much power well then no one has a problem.

[tincup356]

BOTH parties are scum and need to be removed and ALL their political treasure chests emptied.

[tincup356]

It is just about time to start revolting against this treason congress is committing.

[inketolstoy]

Socialize the debt, capitalize the profit''s that''s the republiCON way of doing business, - pythoncharly

Looks like it is the democrat way of doing business too. Or are you going to claim like most of the liberal wingnuts that it is all different (because your party leaders said so).

[noloyalisti]

Let's not forget that these bankers were the same people who instituted the fascist government we have. And they backed Bush and his neo con Crime Family that turned us into a bankrupt third world country.

Don't let ANYONE who voted for these scum trash FORGET IT. Ever!!!!!!!