Bernanke: No bank nationalization

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

But Bernanke told lawmakers it is possible the government could end up with a much bigger ownership stake in Citigroup 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.

The results will help regulators decide whether banks may need additional assistance so they can carry out the critical mission of boosting lending to customers, a key ingredient to the economic turnaround.

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.

One option for help, laid out by the Obama administration Monday, would allow the government to sharply increase its stake in banks.

It would be done by converting the government's stock in banks from preferred to common shares. The strategy, which could be applied retroactively to banks that received money in the first incarnation of the bailout, would give the government voting shares and more say in a bank's operations.

Citigroup has been involved in talks with regulators over ways the government could help strengthen the New York-based bank, including use of the stock conversion plan. Citigroup already has received $45 billion in bailout money, plus guarantees to cover losses on hundreds of billions of dollars in risky investments.