WASHINGTON The United States is nationalizing banks in a piecemeal fashion with no resolution of the deep financial crisis, which shows no sign of letting up, Kansas City Federal Reserve President Thomas Hoenig said on Friday.
In a harsh assessment of the government's handling of the worsening upheaval among financial institutions, Hoenig said authorities had been quick to provide liquidity and public capital to buoy struggling firms, but have not formulated a clear plan to address specific problems, including insolvency.
"We understandably would prefer not to 'nationalize' these businesses, but reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis," he said in remarks to a local group.
Hoenig also said the slow and piecemeal approach has failed to restore confidence and transparency to markets.
"We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions," he said.
Financial authorities have been under increasing fire as hundreds of billions of dollars of loans and capital infusions into distressed institutions have failed to halt the economic downturn, which has only accelerated in recent weeks.
The Obama administration in February announced a $350 billion bank rescue plan that includes stress tests for 19 large institutions, but that plan has been criticized for lacking detail. The Fed and the Treasury this week launched a facility aimed at supporting consumer lending that officials say will unlock frozen credit markets.
In the meantime, stock markets have slid to 12-year lows and unemployment has spiked to 8.1 percent, a level not suffered since 1983.
Hoenig, who is not a voter on the Fed's interest rate setting panel but will be in 2010, echoed some of the frustrations that lawmakers and others have expressed about efforts to bring the financial system out of its swoon.
"Over the past year, the federal government and financial policy makers have enacted numerous programs and committed trillion of dollars of public funds to address the crisis," he said. "And still the problems remain. We have yet to restore confidence and transparency to the financial markets."
Hoenig urged quick replacement of management of failed institutions, and the recognition and writing down of losses.
"It is not a question of avoiding those losses, but one of how soon we will take them and get on to the process of recovery," he said.
(Reporting by Mark Felsenthal; Editing by Chizu Nomiyama)