Ben's got it going on now
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DJ UPDATE: Bernanke Sees No Need To Formally Nationalize Banks
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(Updates with more details)
By Brian Blackstone and Maya Jackson Randall
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--U.S. Federal Reserve Chairman Ben Bernanke said Tuesday that nationalization of major U.S. banks isn't needed to ensure their viability.
"We don't need majority ownership to work with the banks" and stabilize them, Bernanke said in testimony to the Senate Banking Committee.
"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 said.
"I think what we can do is make sure they have enough capital to fulfill their function and at the same time we exert adequate control to make sure they are doing what's necessary to become healthy and viable in the long term," he said.
Bernanke added that he doesn't think it's accurate to call banks "zombie banks."
They still have significant franchise value, Bernanke said, that would erode if the government were to take them over.
Bernanke also said that while the Federal Reserve is keeping open the option of buying longer-dated Treasury securities, the central bank is mostly focused on other efforts to aid private markets - such as a lending program to boost consumer lending and other efforts to buy mortgage-backed securities.
"Our objective is to improve the function of private credit markets so that people can borrow for all kinds of purposes," he said. "We are prepared and we want to keep the option open to buy Treasury securities if we think that's the best way to" improve the functioning of private markets.
However, he added that the Fed's purchases of agency and mortgage-backed securities and its work on the Term Asset-Backed Securities Loan Facility, or TALF, are "taking up a lot of our attention in the short run." The TALF is designed to improve credit in markets backed by consumer-linked assets including credit cards, automobile and student loans as well as small business loans.
While the Fed is keeping open the option of buying longer-dates Treasurys, the Fed is also looking at some other ways of addressing private markets as well, he said.
Separately, Bernanke said that while the U.S. manufacturing sector faces challenges, it shouldn't be written off and remains a highly productive part of the economy.
Bernanke said the U.S. trade deficit has been associated with a reduction of manufacturing's share of the economy.
Still, productivity gains in that sector have been "quite extraordinary," Bernanke said, and have resulted in some of the declines in manufacturing employment.
Responding to a separate question, Bernanke said with the U.S. auction rate securities market largely defunct, state and local governments have seen one source of funding largely dry up.
Bernanke also assured lawmakers that banks will not be allowed to hide anything or provide inadequate information when regulators conduct stress tests to assess the soundness of bank balance sheets under tough economic scenarios.
-By Brian Blackstone and Maya Jackson Randall; Dow Jones Newswires; 202-828-3397; brian.blackstone@dowjones.com and maya.jackson-randall@dowjones.com
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(END) Dow Jones Newswires
February 24, 2009 13:36 ET (18:36 GMT)
Copyright (c) 2009 Dow Jones & Company, Inc.- - 01 36 PM EST 02-24-09 |
