What do you think? Leave a respectful comment.

The video for this story is not available, but you can still read the transcript below.
No image

Geithner: Bank Nationalization Is the ‘Wrong Strategy’

Treasury Secretary Timothy Geithner details the Obama administration's economic recovery plan and clarifies how the government plans to address the banking crisis.

Read the Full Transcript

  • JIM LEHRER:

    I talked with Secretary Geithner at the Treasury Department in Washington earlier today about his plan to fix the banks.

    Mr. Secretary, welcome. Where are you now in implementing the stress test for the banks?

  • TIMOTHY GEITHNER, Treasury Secretary:

    Jim, today we launched this careful, more forward-looking assessment of the financial health of the nation's major banks.

    You know, stress-testing is like a core part of what banks do and what supervisors do, but we wanted to bring a more consistent, more conservative, more forward-looking approach so that we help lift this cloud of uncertainty that's hanging over our financial system that's getting in the way of credit flowing again.

  • JIM LEHRER:

    So you started it today?

  • TIMOTHY GEITHNER:

    Yes, the process started today. And we announced today how it's going to work, what it's designed to achieve, and, very important, we announced the capital assistance program the government is going to provide to make sure there's going to be capital available for these institutions as they go forward.

  • JIM LEHRER:

    So…

  • TIMOTHY GEITHNER:

    So think about it as — so think about it as a two-part thing. There's this careful health assessment designed to sort of look forward, make sure these institutions have an additional cushion of resources necessary to withstand a more severe economic environment. But we're also providing the details on the terms of the capital the government will be willing to provide where that's necessary.

    Of course, we want these firms to be able to raise capital in the private markets, but we're providing sort of a backstop form of insurance to make sure that, again, they're strong enough to get through a more challenging economic environment.

  • JIM LEHRER:

    And that's what the test is designed to determine, how much government money is needed to keep the bank healthy? Is that it?

  • TIMOTHY GEITHNER:

    If any. It's like an assessment of the scale of resources they may need, additional resources, to make sure, again, they have this additional buffer of strength to get through a more damaging economic environment.

  • JIM LEHRER:

    And there are 9,000 banks that are in the United States.

  • TIMOTHY GEITHNER:

    There are.

  • JIM LEHRER:

    Are you going to test all of them?

  • TIMOTHY GEITHNER:

    This program is focused on the nation's major banks. They account for the vast bulk of assets in the system.

  • JIM LEHRER:

    That's 20, 20 of them?

  • TIMOTHY GEITHNER:

    Roughly 20.

  • JIM LEHRER:

    Roughly 20.

  • TIMOTHY GEITHNER:

    And that's the right place to start, again, because they play a very central role in how our markets work. And we want the world to be confident that they're going to be able to play that role on an ongoing basis going forward.

  • JIM LEHRER:

    Are there tests — I mean, tests within the tests that you could explain to us that we would understand beyond the technical side? In other words, what is it that you want to know about these banks before you make a decision about whether to help them further or whatever?

  • TIMOTHY GEITHNER:

    Right. The basic framework is designed, again, to look at the scale of losses they might face…

  • JIM LEHRER:

    Might face?

  • TIMOTHY GEITHNER:

    … they might face, if we went through a more challenging environment, economic environment, and, again, so that they can reassure the world and we can be confident that they've got that necessary cushion of resources that allow them to lend, to support recovery.

    Because, you know, right now, there's this cloud of uncertainty over the economy and the financial system because of uncertainty about how deep and how long the recession might be, and that's making the financial system more defensive. People are hoarding capital and liquidity.

    And the best way to break that and arrest it is to try to get ahead of that and get these institutions to look forward at, again, the range of potentials they might face as we go forward and, critically, to make sure they've got the cushion of resources — you can think of it as a form of insurance from the government — that they can get through that.

The Latest