Ailing U.S. banks may require more aid to stay solvent: report

Fri Feb 13, 2009 10:14am EST

Dr. Nouriel Roubini, a professor at the New York University, during a Reuters Housing Summit in New York, February 19, 2008. REUTERS/Chip East

Dr. Nouriel Roubini, a professor at the New York University, during a Reuters Housing Summit in New York, February 19, 2008.

Credit: Reuters/Chip East

Related Video

Video

Business Update: Asian up on govts

Fri, Feb 13 2009
Video

Japan's sharp slowdown

Fri, Feb 13 2009
Video

Obama's stimulus gamble

Thu, Feb 12 2009

(Reuters) - Some large U.S. banks, may require more aid to stay solvent, the New York Times reported on Friday, citing economists and other finance experts.

A sober assessment of the growing mountain of losses would overwhelm the value of the banks' assets, the paper reported.

"The United States banking system is effectively insolvent," it quoted Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, as saying.

He estimates that total losses on loans by U.S. financial firms and the fall in the market value of their assets will reach $3.6 trillion, up from his previous estimate of $2 trillion, according to the New York Times.

Adam Posen, a senior fellow at the Peterson Institute for International Economics, was quoted as saying that the government would have to play a more prominent role in sorting out the banking industry.

"Putting it off only brings more troubles and higher costs in the long run," he said. "At this moment, the liabilities they have far exceed their assets," he added. "They are insolvent."

None of the experts' research focuses on individual banks, it said, adding that there are exceptions among the 50 largest banks in the country.

Even banks that might technically be insolvent can continue business for a long time, and could recover their financial health when the economy improves, the paper said.

U.S. Treasury Secretary Timothy Geithner on Tuesday unveiled a plan to soak up as much as $1 trillion in bad assets on banks' books and expand a Federal Reserve program to support up to $1 trillion in new loans.

For banks to resume the ample lending needed to restart the wheels of commerce, the answer is a larger, more direct government role than in the Treasury Department's plan outlined this week, the paper cites the economists and experts as saying.

The government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets, the experts told the paper.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Jan Dahinten)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.