Fed Chief Nixes Bank Nationalization Talk

Federal Reserve Chairman Ben Bernanke on Wednesday again spurned speculation that the government may nationalize Citigroup or other big banks.

When asked about Citigroup during a House Financial Services Committee hearing, Bernanke said nationalization "is when the government seizes the bank and zeros out its shareholders ... we don't plan anything like that."

But Bernanke told lawmakers the government could end up with a much bigger ownership stake in Citigroup Inc. or other banks.

In the case of Citigroup, Bernanke said: "We'll see how their test works out and what evolves."

The Fed chief was referring to new "stress tests" that regulators will start conducting on the biggest banks to judge whether they can hold up if the recession were to worsen.

The tests will help regulators decide whether the banks have sufficient capital -- and the right mix of it -- to withstand any additional shocks to the economy over the next two years.

Bernanke told the House panel that if the stress test reveals that a bank needs more capital, it will have up to six months to raise it from private companies. If it can't, then the government would provide assistance.

Meanwhile, investors watched Bernanke's second day of testimony closely.

Bank stocks have been falling amid continuing uneasiness about the steps the government will take to help struggling financial companies.

Still, some pullback was to be expected after stocks shot higher Tuesday following Bernanke's reassurances about the economy and the banking industry.

The Dow closed 80 points down at 7,270. The Standard and Poor's 500 index lost 8 points to finish at 764 and the Nasdaq composite index declined 16 points to close at 1,425.