Foreign Policy Blogs

Six Banks Fail Stress Test, Feds May Nationalize

US Gov't to Banks: 'I Own You.'

US Gov't to Banks: 'I Own You.'

April 29  — According to reports coming out of Washington and New York, at least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.  While some of the lenders may need extra cash injections from the government, Washington will more likely require that most of the capital will come from converting  Preferred shares — which the government received in return for Federal bailout money — into common equity.  This action would, in effect, make the Federal government the largest shareholder in each of the affected companies, effectively “Nationalizing” those banks.  

The Federal Reserve is now hearing appeals from banks, including Citigroup Inc. and Bank of America Corp., that regulators have determined need more of a cushion against losses  — despite allowing accounting gimmicks to give the appearance of profitability.  By pushing conversions, rather than federal monetary assistance, the government would allow banks to shore themselves up without the political taint that has soured both Wall Street and Congress on the bailouts. The risk is that, along with diluting existing shareholders, the government action won’t seem strong enough.  Read full Bloomberg report here.

 

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Elison Elliott

Elison Elliott , a native of Belize, is a professional investment advisor for the Global Wealth and Invesment Management division of a major worldwide financial services firm. His experience in the global financial markets span over 18 years in both the public and private sectors. Elison is a graduate, cum laude, of the City College of New York (CUNY), and completed his Masters-level course requirements in the International Finance & Banking (IFB) program at Columbia University (SIPA). Elison lives in the northern suburbs of New York City. He is an avid student of sovereign risk, global economics and market trends, and enjoys writing, aviation, outdoor adventure, International travel, cultural exploration and world affairs.

Areas of Focus:
Market Trends; International Finance; Global Trade; Economics

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