America is not going to nationalize the largest banks

American authorities continue to invest money in the US banking industry, trying to prevent the further slowdown of national economy and collapse of the largest banks. Washington has already given the financial help to a number of the bank companies.

Besides, the number of financial companies requiring help increases day by day: recently Bank of America, the second-large American bank, was granted a multi-billion credit by the US authorities. Now many experts wonder whether Washington will have to nationalize the US banking system or not.

Of course, the American authorities will unlikely make the decision to take all banks of the country under control, as it was made in 1990-th by Sweden. But, on the other hand, the quantity of banks, which are already under control of the state, grows day by day. "The process of gradual nationalization of the US banking system has already begun. However, it is not clear whether the largest American banks can keep independence", - marks Professor Roy Smith from Stern School of Business.

It is necessary to note that even now the US banking system desperately requires capital despite the taken measures. According to economists' estimation, the American banks will require from 700 million to 2 billion dollars in the nearest future. And we should not forget that there will not be any proceeds from the private sector - anyway, until the world financial system begins to restore from the crisis.

Considering this fact, it is quite clear that only the US authorities can help banks. By the way, America tried to help investors to keep their money in the beginning of the crisis, but now the destiny of investors and their capitals does not already interest anybody. The glaring example - crash of Lehman Brothers Holdings Inc., which plunged all world markets into chaos. The authorities could prevent bankruptcy of this company, but have decided not to meddle in. And newly elected US president Barack Obama, who assumes his post on January, 20th, has already declared, that he would demand more concessions from banks, which need money, than the administration of G. Bush did.

Thus some analysts note that now the authorities already put pressure on some banks. For example, Citigroup had to sell its broker subdivision. According to independent experts' estimation, the authorities took Citigroup under control in the end of November - it was then when the bank received another investment from the authorities.

However, market participants add that it is still a long way off to full nationalization of the US banking system. Moreover, in case of nationalization of even one largest bank - whether it would be JPMorgan Chase& Co, Bank of America Corp or Citigroup - the actives of the US Federal Reserve System (FRS) will grow twice more at once. As a result, we should expect the further falling of dollar and loss of trust of investors to the American banking system. If the authorities made the decision to nationalize Citigroup, they would have to take under control another ten banks.

Source: BanksDaily.com
Date: 19.01.2009 [217]