Banking regulator says U.S. not pursuing nationalization

NEW YORK/WASHINGTON Thu Feb 26, 2009 1:21am EST

FDIC Chairwoman Sheila Bair testifies before the House Financial Services Committee on Capitol Hill in Washington in this September 17, 2008 file photo. REUTERS/Larry Downing

FDIC Chairwoman Sheila Bair testifies before the House Financial Services Committee on Capitol Hill in Washington in this September 17, 2008 file photo.

Credit: Reuters/Larry Downing

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NEW YORK/WASHINGTON (Reuters) - U.S. banking regulators are not pursuing nationalization of troubled institutions struggling to shed toxic assets from their balance sheets, the chairman of the Federal Deposit Insurance Corp said on Wednesday.

"Nationalization means different things for different people but nationalization is not the route we're pursuing now," FDIC Chairman Sheila Bair told reporters after speaking to a group of bankers in New York.

Bair and other U.S. regulators are crafting a rescue package to help banks regain their footing by injecting capital, enticing private investors to buy bad assets and aiding millions of borrowers who have lost, or face losing, their homes.

Regulators also launched a program on Wednesday to "stress test" about 20 of the biggest banks to determine how they withstand certain scenarios including a deeper recession with lower home prices and higher unemployment.

The test, which is applied to each institution with more than $100 billion in assets, could determine if any of them might need further capital injections in exchange for preferred securities convertible to common stock.

"So, I think the question is, 'how well-positioned are they if things get more adverse?'" Bair said on CNBC television.

Bair said the government, which could gain voting power in banks if its preferred securities are converted to common stock, does not want to play a managerial role in the operations of banks.

"The presumption of the government is that we should try to avoid that," Bair told CNBC. "The banks work best in private hands. The government doing day-to-day operational decisions is probably not a good way to go."

TOUGH FOURTH-QUARTER

The FDIC is slated to release on Thursday industry earnings and other financial data for the fourth quarter. Many expect bleak financial results, but the one bright spot could be a growth in deposits, indicating consumer confidence.

"It's been a tough quarter," Bair told the bankers, while affirming "robust" growth in deposits.

"Insured deposits are stable. They're staying in the bank. That's an important driver for our economy."

The FDIC is scheduled to hold an open meeting Friday to set new premiums for the second quarter. Premiums are fees the FDIC charges banks for having their deposits insured by the government.

At the Friday meeting, the FDIC is also expected to give banks more time to issue debt under a voluntary government program that guarantees against losses.

The FDIC guarantees up to $250,000 per depositor when an insured bank fails. That amount only lasts through this year unless Congress raises it permanently from $100,000.

With a steady stream of bank failures this year and last, the FDIC is trying to replenish its deposit insurance fund but Bair warned bankers that they can expect to pay more for the federal backing.

"On Friday, we will have to raise premiums again," Bair said. "I'll warn you all now."

Bair told CNBC she hopes banks do not forward the cost of higher premiums to their customers.

(Editing by Lincoln Feast)

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