Bernanke Spurns Outright U.S. Control of Banks in Rescue Plan
Federal Reserve Chairman Ben S. Bernanke spurned outright federal control of U.S. banks in favor of a public-private partnership that the government would eventually exit.
Bernanke told lawmakers yesterday the government would use supervision instead of shareholder control to guide major banks, and warned against dismantling their franchises. The remarks eased concern Treasury Secretary Timothy Geithner’s financial plan would push aside private shareholders, and spurred the biggest gain in financial shares in a month.
“Bernanke was a voice of reason and he provided clarity in areas where others have failed,” said Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. LLC in New York. The Fed chairman assured markets that “the nation’s banking regulators were not proposing nationalizing banks.”
The Fed chief’s remarks countered a growing drumbeat among some economists and lawmakers in favor of government takeovers of major financial firms to cleanse them of distressed assets and ensure they keep lending. Establishing ownership control poses legal issues and could undermine banks’ value with private investors, Bernanke warned.