Bank Survival Hinges On Stress Tests
The head of the Federal Deposit Insurance Corp. said Tuesday additional government steps to shore up the shaky financial system will hinge in part on a test to determine how the largest banks would fare in an even weaker economy.
Chairman Sheila Bair, in an exclusive interview with CBS' The Early Show, cautioned at the same time against rushing to a judgment that Washington intends to take over the industry, saying, "I think there's ambiguity in the word 'nationalization.'"
"I think that is something that would be surprising," she said.
White House press secretary Robert Gibbs said the Obama administration is "going to help banks get through this crisis, but nobody imagines nationalizing banks."
Bair said that a "stress test" for some 20 of the largest banks this week will help federal policymakers "what type of additional capital investments the government may need to make."
Bair also said that if the test shows that the banks need more capital - and are unable to raise it privately - then the government might have to act. The purpose of the "stress test," she told The Early Show, is to determine whether the banks "have an adequate enough buffer" to survive in an even more dire general economic condition.
According to a new CBS/New York Times poll, support for government aide to banks and financial institutions continues to fall. Fifty percent of those surveyed now say they disapprove of the government giving money to those entities, while 39 percent approve. In December, more Americans approved (46 percent) than disapproved (44 percent).
"For right now, they're fine," Bair said of the banks. "I think the issue is how much of an additional buffer they have to withstand more adverse economic situations."
As far as additional decisions, she said, "I think we need to do the stress test first ... before we determine what type of additional capital investments the government may need to make."
Asked about the declining confidence among investors as reflected in the continuing stock market plunge, Bair said the government already has taken a number of steps to steady the financial markets.
"People want the quick fix," she said, "and if you're looking for the quick fix, you're not going to get it."
Gibbs made his comment in an interview on ABC's "Good Morning America.