Speculation that the government will nationalize banks is “unnecessarily eroding consumer confidence” in the banking system, according to the lobbying group for American banks.
American Bankers Association President Edward Yingling released the statement late Friday afternoon amid a wild day on Wall Street, where markets rose and fell with the words of Washington policymakers. Banks were particularly affected, with stock for troubled Citigroup falling below $2 a share.
{mosads}The Dow Jones Industrial closed 100 points down, but that was after the market rallied at White House statements affirming support for privately held banks.
The administration continues to “strongly believe that a privately held banking system is the correct way to go,” White House spokesman Robert Gibbs said at his daily press briefing. Gibbs’s words seemed to calm the markets, which rose after his briefing.
The administration until then had been relatively silent on the subject of whether the government should buy some of the nation’s troubled banks, an idea that has gained currency on Wall Street and in Washington this week.
Sen. Chris Dodd (D-Conn.), the chairman of the Senate Banking Committee, was the latest politician to offer measured support that nationalization of at least some banks could happen, if for a limited time. In an interview Friday afternoon with Bloomberg, Dodd said the nationalization of some banks may be necessary “at least for a short time.”
The Dow Jones fell after Dodd’s statement before rising again after the White House press briefing, underscoring the level at which traders are watching for signals from Washington.
The banking industry opposes nationalization , and Yingling said most of the country’s banks are well-positioned to survive the financial crisis. He placed the blame for recent bank losses squarely on speculation of significant government involvement in the sector.
Investment of private capital will not return “until the fear of further dilution of private equity investments in the banking system has significantly abated,” Yingling said. “Investors will remain on the sidelines if there is continued speculation that the government may step in and undercut their investment.”