CCH Financial Reform News Center

Bernanke Says Major Banks Viable, but System Not Yet Stabilized

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, March 3, 2009.

Federal Reserve Board Chairman Ben Bernanke stressed that major U.S. banks are all lending, active and viable, but he acknowledged that the banking system has yet to be stabilized.

At a Senate Budget Committee hearing March 3, Bernanke stated that with respect to banking, “clearly we have not stabilized that situation.” He reiterated that the Fed does not believe nationalization is “either warranted or necessary,” and noted that as the government takes larger stakes in financial institutions there will be very close supervisory oversight to ensure that banks are not taking excessive risk and are taking the necessary steps to restructure themselves.

Aid to AIG Restructured

The Treasury Department and Federal Reserve Board have restructured the government's assistance to American International Group, Inc. (AIG) in order to stabilize this systemically important company in a manner that best protects the U.S. taxpayer. The restructuring is designed to bolster AIG's capital and liquidity to help facilitate the orderly completion of the company's global divestiture program. In announcing the restructuring, the Treasury stated that “public ownership of financial institutions is not a policy goal and, to the extent public ownership is an outcome of Treasury actions, as it has been with AIG, it will work to replace government resources with those from the private sector to create a more focused, restructured and viable economic entity as rapidly as possible. This restructuring is aimed at accelerating this process.”

The Treasury will exchange its existing $40 billion cumulative perpetual preferred shares for new preferred shares with revised terms that more closely resemble common equity and thus improve the quality of AIG's equity and its financial leverage. Also, the Treasury will create a new equity capital facility, which allows AIG to draw down up to $30 billion as needed over time in exchange for non-cumulative preferred stock to the U.S. Treasury.

http://www.ustreas.gov/press/releases/tg44.htm

Treasury and Banking Agencies Stand Firmly Behind Banking System

The Treasury Department, the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Office of Thrift Supervision and Federal Reserve Board have issued a joint statement in which they noted “A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery.” The statement added, “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. The government will ensure that banks have the capital and liquidity they need to provide the credit  necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.” http://www.ustreas.gov/press/releases/tg38.htm

White House Addresses Bank Nationalization Speculation

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Feb. 23, 2009.

Amid continuing speculation on Wall Street that Bank of America and Citigroup could be nationalized, the White House stressed February 20 that it continues to strongly support a private banking system. Federal Reserve Board Chairman Ben Bernanke gave similar assurances earlier in the week.