Traders work on the floor of the New York Stock Exchange, February 18, 2009. Shares of major U.S. banks plunged for the sixth day on Friday due to concerns that the U.S. government will take over lenders. (Xinhua/Reuters Photo)

New York-based Citigroup and Charlotte, North Carolina-based Bank of America, have so far received 90 billion dollars from the U.S. government aid. After losing more than 90 percent of their value, the market capitalization of the two big financial firms (less than 30 billion dollars) are now well below the amount of government assistance.

NATIONALIZATION CONCERNS

Concerns on bank nationalization have mounted as Alan Greenspan, the former Federal Reserve chairman, said earlier this week that the U.S. government may have to nationalize some banks on a temporary basis to fix the financial system and restore the flow of credit.

Greenspan, who for decades was regarded as a free-market fundamentalist, said nationalization could be the least bad option left for policymakers in an interview with the Financial Times.

Panic amid investors even increased as Fed Chief Ben Bernanke considered nationalization as an option.

Bernanke said at the national press club this week that “whatever actions may need to be taken at one point or another, I think there’s a very strong commitment on the part of the administration to try to return banks, or keep banks private or return them to private hands as quickly as possible.”

Proponents of nationalization cite the Sweden government’s use of the concept in the 1990s, which is widely regarded as successful crisis management. The Swedish government injected capital into some institutions, separated bad assets from good ones, replaced management, ran them as long as necessary and sold them back into the market.

The U.S. government accomplished much of the same in resolving the savings and loan crisis of the late 1980s and early 1990s.

GEITHNER’S NEW PLAN

Fiancials turned to bearish last week as Treasury Secretary Timothy Geithner failed to convince investors that his financial rescue plan will work.

Geither’s plan would use a “stress test” for banks with assets over 100 billion dollars as part of the financial aid process is seen as a prelude to some nationalization process. Such thinking has dragged on financial stocks.

The Obama administration has yet to address some “obvious issues,” said Meredith Whitney, founder and CEO of The Meredith Whitney Advisory Group, early this week in an interview with CNBC.

There needs to be moves to disaggregate the concentration of loans from top banks, but I haven’t heard anything like that going on in D.C., added Whitney.

The White House said on Friday it strongly believed in a privately held bank system, after rumors of bank nationalization hit Wall Street.

“This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government,” White House spokesman Robert Gibbs told a news conference on Friday afternoon.

CNBC reported that the U.S. Treasury Department would release more details of the Obama administration’s bank rescue plan next week.

Citigroup and Bank of America both said they are not in danger of nationalization later Friday.

Bank of America CEO Ken Lewis attributed speculation about the government taking over his institution to a “lack of understanding” regarding the company’s operations.

“We see no reason to nationalize a bank that is profitable, well-capitalized and actively lending,” Lewis said in a statement.

Citigroup said the bank has not held talks with the U.S. government about nationalization.

VietNamNet/Xinhuanet