- The Washington Times - Monday, February 23, 2009

Federal regulators said Monday they plan to start evaluating the needs of major banks on Wednesday and served notice that the U.S. government “stands firmly behind the banking system” during the current financial crisis.

They said they will ensure that the banks have the money and liquidity necessary to restore economic growth as part of a Capital Assistance Program that is to begin with an evaluation of the banks.

Secretary Treasury Timothy F. Geithner referred to the CAP program Feb. 10 as a “stress test” that is intended, the regulators said Monday, “to ensure that our banking institutions are appropriately capitalized with high-quality capital.”

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“Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands,” said a joint statement issued by the Treasury Department.

The pledge to help the banks came in a statement from Treasury, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve Board.

It appeared following a panicky session on Wall Street on Friday that briefly sent the Dow Jones Industrial Average plunging to its lowest level in 11 years on investor fears that the U.S. government planned to nationalize one or more of the major banks that are under severe strain because of their investments in securities whose value may not be known.

The Dow later recovered following assurances from White House spokesman Robert Gibbs that the government had no intention of nationalizing the banks.

The joint statement did not mention any banks by name.

“The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses,” Monday’s joint statement said.

“The government will ensure that the banks have the capital and liquidity they need to provide the credit necessary to restore economic growth,” it said. “Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.”

The major banks have been reluctant to lend money because of concerns they will not be repaid even though the federal government provided them with about $350 billion late last year to encourage them to loosen credit. The money was part of $700 billion authorized by Congress to bail out banks and other financial institutions.

“Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized,” the regulators said. “This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated.”

It assured investors and bank customers that “participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy.”

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