Geithner sees public 'reassured' by bank stress-test results
Treasury Secretary Timothy F. Geithner is out cheerleading for the post-stress-test banking system in an interview with Charlie Rose on PBS tonight.
“I think the results will be, on balance, reassuring” to the public, Geithner says of the government’s financial-strength reports on the 19 biggest banks, due to be released Thursday at 2 p.m. PDT.
“There is [sic] very significant cushions in these institutions today, and all Americans should be confident that these institutions are going to be viable institutions going forward,” Geithner said. “What we want to do is make sure that people have confidence that our financial system is going to be able to get through this and going to be able to lend.”
Wall Street went along with the program Wednesday, driving bank stocks sharply higher and lifting the Dow Jones industrial average 101.63 points, or 1.2%, to 8,512.28. The Dow now is up 30% from its 12-year low reached March 9.
The Obama administration already had made clear that none of the 19 banks would fail. Lenders deemed by the government to need more capital to bolster their balance sheets against future loan losses have a number of options for raising that money, Geithner noted.
From Bloomberg News:
Geithner said those that do require more funds can raise new common equity from existing shareholders or new investors, convert preferred shares held by private investors or the government into common equity, sell additional assets or, failing that, they can apply to get additional capital from the government.
He said he expects the “vast bulk” of banks will be able to raise needed capital “through private sources” instead of getting government financing. The government will take larger stakes in the banks, either by adding capital or converting preferred shares, “if necessary,” Geithner said, “but we’ll be reluctant to do that” and “we’ll get out as quickly as possible.”
He did not rule out forcing management changes at banks in which the government has a sizable holding. “We’ll have to make judgments about whether the quality of leadership of those boards is strong enough so that again our interests are met best,” Geithner said. “And our interests are not just as a shareholder, as an investor. We want to make sure the institutions will be strong enough so that we can get out, the private capital will come replace us over time.”
As for the economy, Geithner called the Federal Reserve’s forecast for “slightly positive” growth in the second half of this year and a recovery that will “strengthen” next year a “good, independent, credible forecast.”
“The pace of decline is slowing, here and around the world,” Geithner said. “The main thing is a sense of stability.”
-- Tom Petruno
Photo: Treasury Secretary Timothy Geithner with President Obama this week. Credit: Ron Edmonds / Associated Press