USA: Banking analyst says investors need to see more details about the new U.S. financial stability plan

Record ID: 242699

  • Title: USA: Banking analyst says investors need to see more details about the new U.S. financial stability plan
  • Date: 12th February 2009
  • Summary: NEW YORK, NEW YORK, UNITED STATES (FILE) (REUTERS) EXTERIOR OF CITIBANK BANK/ SIGN
  • Embargoed: 27th February 2009 12:00
  • Keywords:
  • Location: Usa
  • Country: USA
  • Topics: Finance,Domestic Politics
  • Reuters ID: LVABVC3K8KW9BQD8RSFTPY25ZTLF
  • Story Text: The Treasury on Tuesday (February 10) unveiled a revamped financial rescue plan to cleanse 500 billion dollars (USD) in spoiled assets from banks' books and support one trillion dollars (USD) in new lending through an expanded Federal Reserve program.
    The renamed "Financial Stability Plan," rolled out by Treasury Secretary Timothy Geithner at the Treasury, will also devote 50 billion dollars (USD) in federal rescue funds to try to stem home foreclosures and soften the crushing impact of the deep housing crisis now afflicting the entire economy.
    The Treasury said a public-private investment fund will be established, seeded with government money, to leverage private capital so that so-called toxic assets can be sponged out of the faltering banking system. The hope is that that will enable banks to resume lending.
    Hugh Johnson, Chief Investment Officer for Johnson, Illington Advisors, told Reuters "the whole idea of the Geithner Financial Stability Plan is to stabilize the financial sector and to do it in ways that it's going to free up those bad assets to put the financial sector in a position so that they are much better able to make loans and for an economy that grows on money and credit, that's what drives it. This is really, really a crucial piece of this equation."
    The revamped approach to the government's financial rescue war chest would use 100 billion dollars (USD) to cover risks the Fed would take in expanding a 200 billion dollar (USD) program supporting consumer and small business lending to a one trillion dollar (USD) program that also supports an array of mortgage-related assets.

    "What's it gonna take to get the banking industry to start to make loans again? That's really crucial, and the answer to that question is bankers will make loans once they start to have a lot more confidence that their performing loans are not going to become non-performing loans. In other words, they have to have more confidence that the U.S. economy is going to start to recover. So to some extent the Geithner plan, or the financial stability plan, if you may, depends very heavily on the stimulus plan or that the stimulus plan works and gets the economy going. Once the economy starts to go, banker confidence that their loans are going to be repaid will rise and they'll start to lend again. The two really have to kinda simultaneously go hand and foot. It's almost chicken and the egg problem, but the important thing is the economy has to start to do better before banks will start to increase their lending," said Johnson.
    After Geithner's announcement, stock prices fell further and the dollar extended losses while prices for U.S. Treasury debt securities extended gains.
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