Courtesy of Courtney Comstock of Business Insider
A lot of what Ben Bernanke said in his speech today was in regards to the U.S. banking sector.
No surprise there – everyone is watching financial stocks crash near crisis levels. No one wants another bailout, but given the risk of banks’ experiencing big losses because of their contagion to Euro banks (and their exposure to the sovereign debt crisis), someone had to ask Bernanke, is another bailout a possibility?
Bernanke said no – not to just one bank. However, the Fed could provide some funding via a new lending program, which might be necessary to save the economy in the U.S. because right now 6 banks’ assets are equal to 60% of the U.S. GDP.
Most financials jumped after Bernanke said this.
The Atlantic summarizes what Bernanke said about bailouts:
He stressed that, due to last summer’s Dodd-Frank financial regulation bill, the Fed could no loner bail out specific institutions like it did with AIG and others during the 2008 crisis. But the Fed does remain the lender of last resort, said Bernanke, and could provide a broad-based lending program to avoid liquidity problems if banks’ funding dried up.
As far as when a "bailout-type" activity could take place – that of course, depends on what happens in Greece, and/or perhaps what happens when Italy has its next Treasury auction. But Bernanke suggested that contagion in the European banking sector would cause big problems for the U.S. economy in his speech today.
“We have looked very carefully at bank exposures both to foreign sovereigns and to foreign banks."
“The exposures of U.S. banks to the most troubled sovereigns — Portugal, Ireland and Greece — is quite minimal. So the direct exposures there are not large.”
Notice that he didn’t say anything about US banks’ exposure to France or other peripheral countries. (If they’re anything like Euro banks’ exposure to peripheral countries…)
Instead Bernanke suggested that US banks have exposure to Euro banks, an opinion that the market seems to support, based on the recent hammering of financial stocks.
When asked about the Volcker Rule (which is just one new regulation hurting prospects for future bank earnings) and why banks continue to prop trade despite it, Bernanke said that the rule had not been enacted yet, and that the rule would be officially proposed in the next few weeks.
