Bernanke rejects nationalization as answer to US financial crisis

Bernanke rejects nationalization as answer to US financial crisis Washington  - US central bank head Ben Bernanke on Wednesday rejected the idea that the government plans to nationalize major US banks in danger of collapse, during a second day of testimony before legislators.

The Federal Reserve chairman insisted that President Barack Obama's administration preferred to use public-private partnerships, which were temporary in nature and involved taking only a portion of banks' shares in exchange for emergency government funds.

Nationalization involved completely shutting private shareholders out of the process, and "we don't plan anything like that," Bernanke told the House Financial Services Committee.

Bernanke was elaborating on similar comments made in Senate testimony Tuesday as the government aims to ease fears among investors that have driven US stocks to their lowest levels in more than a decade. Wall Street stocks continued falling by more than 1 per cent Wednesday despite Bernanke's assurances.

Some economists have said nationalization may be the only option for banks in danger of bankruptcy amid the worst financial crisis since the Great Depression. The government is currently mulling whether to take an up to 40-per-cent stake in Citigroup Inc, according to US media reports.

Financial institutions are expected to lose more than 2 trillion dollars in connection with the United States' collapsed housing market, and the government has already injected hundreds of billions of dollars into banks to plug that gap.

Obama Tuesday night said his administration would likely need additional funds beyond a 700-billion-dollar financial rescue package approved in October.

A series of so-called "stress tests" of the country's 20 largest banks began Wednesday to review how much more capital each institution might need to stay afloat and continue lending to consumers. Bernanke said some of the banks may be fine without fresh government aid.

Obama will take another crack at relaxing the markets later Wednesday after a meeting with Treasury Secretary Tim Geithner and major financial leaders in Congress. He is expected to detail plans for an overhaul of financial regulations to prevent a future crisis of the same magnitude. (dpa)

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