Bank Nationalization Casts A Shadow
“If you run it properly you find out how big the hole is,” says Todd, who's also an economic historian.
He points to the Great Depression, when the government's Reconstruction Finance Corporation used something resembling a stress test and a national bank holiday to sort out the weak and strong banks.
Some 12,000 of the 17,000 banks reopened. About half of them received federal loans to boost their capital, based on a government formula, and had ten years to get their capital back up to par.
“We have to start naming names,” says independent bank analyst Bert Ely. “We have a bunch of smaller banks that the FDIC can take over. When you get past Bank of America and Citigroup who are we talking about? People need to start talking specific cases and approaches tailored to those situations.”
That may well be necessary, given the different balance sheets and problems of Citigroup and Bank of America, the latter of which acquired troubled companies such as Countrywide and Merrill Lynch, with the government’s blessings and financial inducements.
In the meantime, the nationalization clock is ticking. A change in government is often a condition for dramatic action.
As one industry insider puts it: “We are in the land of last resort."