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US gov't vows to shore up financial system

(Xinhua)
Updated: 2009-02-24 11:49

WASHINGTON -- US authorities on Monday vowed to try their best to shore up the ailing financial system and reaffirmed that the banks should "remain in private hands."

"A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery," said a joint statement released by the Treasury Department, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve.

The regulators said the US 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."

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

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The Obama administration said last Friday it is not trying to take over Citigroup and Bank of America, two ailing financial institutions.

"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," said White House press secretary Robert Gibbs.

On Wall Street, shares of Citigroup and Bank of America tumbled last week as rumors of nationalization prompted investors to sell.

Monday's joint statement by the regulators reaffirmed that the financial institutions should remain in private hands.

"Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital," it said. "Otherwise, the temporary capital buffer will be made available from the government."

Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory, according to the regulators.

"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," the authorities said.