Will United States be forced to nationalize banks? – Jan 21, 2009
NEW YORK (Reuters) – The U.S. government’s latest bank rescue, this time a multi-billion dollar lifeline handed to Bank of America, has led to more talk of what once would have been unthinkable — European-style nationalization of major American banks.
Few see the government nationalizing the entire banking system the way Sweden did in the 1990s, but the U.S. is growing more willing to put significant pressure on the largest banks.
Over time, the government could exercise the same day-to-day control over major U.S. banks as with IndyMac Bank, a failed California thrift that the U.S. government operated for much of last year.
“We’re nationalizing banks one at a time now. The real question is, will the biggest ones need to be nationalized?,” said Roy Smith, professor at New York University’s Stern School of Business.
The U.S. banking system desperately needs capital. Estimates of the shortfall range from $700 billion to more than $2 trillion.
That money will not come from the private sector as long as the pending losses are all but impossible to estimate.
Without private investors bailing out the sector, whose functioning is key to reviving an economy mired in recession, the U.S. government will have little option but to step up.