Rahm Emanuel, who is the White House chief of staff recently said on ABC’s, “This Week” program, that he believes, “we will be able to avoid the temporary nationalization of the nineteen weakest of the big banks”, and added that he didn’t envisage that it would be necessary for the administration to ask for any additional funding, since several banks are already preparing to repay loans that they recently received.

Emanuel’s remarks were reinforced by those of Lawrence Summers, who is National Economic Council director, who said on NBC’s “Meet the Press”, “we won’t have to get more money because there’s the capacity to turn to the private market first for firms needing more capital. The government can also deploy if necessary additional taxpayer cash, which is likely be buttressed over time by lenders that are in the strongest position of paying back U.S. money”.

Financial regulators and The U.S. Treasury are presently clashing with each other as to how to disclose the results of stress tests that are scheduled to be released May 4, because several officials are concerned about the potential damage that could be caused to the weaker institutions if it’s not done correctly.

The intention of the tests, is to clarify which of nineteen companies that include Citigroup Inc., Bank of America Corp., GMAC LLC and MetLife Inc., have enough capital to weather a deeper economic downturn, should it in fact occur, and the Office of the Comptroller of the Currency, and other regulators would prefer that less details about the assessments be publicized, whilst the Treasury would prefer more.

The first of two major dangers that is envisaged, is that if all the banks pass the tests with clean bills of health, then the credibility of the tests themselves will suspect, especially since the economy has worsened since the Treasury announced the tests in February, causing questions to be raised about whether the checks that regulators are presently applying to bank portfolios are exacting enough. The second danger is that if some banks fail the tests, then investors can be expected to punish them, by refusing to invest in them, thereby causing them even greater problems.

The nineteen financial institutions are all expected to get the preliminary results of the tests as early as April 24, and any banks deemed to be weak, and in need of additional capital will be given six months to raise additional funds.

President Barack Obama said at a news conference in Trinidad and Tobago on April 19, that “the tests will show that different banks are in different situations”, and he pledged that no new injections of government money would, “go into a black hole where you aren’t going to see results or some exit strategy so the taxpayers ultimately are relieved of these burdens”.

Related posts:

1. Ten Of The Nation’s Banks Need A Total Of $75 Billion The just released government’s “stress-test” results suggest that ten of the nation’s nineteen biggest banks will need a total of around $75 billion in new capital in order to withstand losses if the recession worsens. According to the tests, some of the largest banks are stable, whilst others will need billions more in capital. Meanwhile, [...]...
2. Will Life Insurance Companies Get $20 Billion Bailout Money? Life insurance companies have come under financial strain in recent months because the credit markets have been frozen causing their capital levels to seriously decline and several of them might soon be getting government bailout money. A number of the companies involved offered to buy small bank holding companies last fall, but added the proviso [...]...
3. As Stocks Advanced The Number Of Defaulting Homebuyers Rose By 50% Consumer confidence is important, but what should we believe when one headline tells us that, “The banks have enough cash”, whilst another screams, “Mortgage delinquencies among the most creditworthy homeowners rose by 50% last month”. After Treasury Secretary Timothy Geithner said, “the vast majority of the nation’s banks have enough capital”, U.S. stocks advanced the [...]...
4. The ‘Loan Modification Program’ Finally Gets Underway. The Treasury Department finally announced on Wednesday, April 4th the names of the first six banks that will get massive government subsidies. The names of banks and what they’ll be getting are; • JPMorgan Chase – $3.6 billion in subsidy and incentive payments • Wells Fargo – $2.9 billion • Citigroup – $2 billion • [...]...

Tags: administration, bailout, banking system, breaking news, crisis, economy, Emanuel, Federal Reserve, finance, financial crisis, financial system, global slowdown, government, Larry Summers, nationalize, politics, stimulus, Treasury

This entry was posted on Monday, April 20th, 2009 at 2:32 pm and is filed under Emanuel, Federal Reserve, Larry Summers, Treasury, administration, bailout, banking system, crisis, economy, finance, financial crisis, financial system, global slowdown, government, nationalize, politics, stimulus. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.