U.S. Treasury Secretary Timothy Geithner on Wednesday scolded bankers for creating a damaging loss of confidence, but said nationalizing the banks was the wrong strategy for the United States.
In an interview with PBS television’s "NewsHour" program, Geithner said he was "deeply offended by the quality of judgments we’ve seen in the leadership of our nation’s financial institutions."
"They’ve created a deep hole of public distrust and anger which is enormously damaging, and they have a huge obligation to try to restore that basic trust and confidence. And we’re going to make sure they do it by making sure that our assistance comes with conditions," he said.
As regulators launched a new "stress test" program for about 20 of the largest U.S. financial institutions, Geithner said the Treasury stands ready to support banks that would need more capital to withstand a worse-than-expected recession.
The government may wind up with a direct ownership stake in institutions that receive capital through a new Treasury aid program, but it will not be running the banks nor nationalizing them.
"I think that’s the wrong strategy for the country and I don’t think it’s the necessary strategy," Geithner said of nationalization. "What we need to do is to make sure that these institutions have the resources necessary to perform their critical function on an ongoing basis in our economy as a whole."
The Treasury secretary said there may be cases in which banks receive "exceptional levels of support," but that will come with conditions to make sure that they restructure to emerge stronger and replace government capital with private capital as soon as possible.
The terms of the Treasury’s Capital Assistance Program, in which the government buys preferred shares that are convertible into common equity are "expensive and unattractive" to provide a "big incentive" for firms to seek private funding, he said.
Geithner also said he would move forward "relatively quickly" to lay out more details of his financial system stabilization plan, particularly for plans to support credit markets through "very large, aggressive, dramatic direct lending programs."