Government regulator stress testing will probably result in some form of nationalization for the nation's largest banks, say credit union economists.
"The status quo appears increasingly untenable," Mike Schenk, CUNA economics and statistics vice president said.
The implied government guarantee that comes with nationalization should help to reduce market uncertainty and at least initially, increase confidence in these institutions, he said.
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Economic researcher Mike Moebs of the Chicago-based Moebs $ervices said according to his calculations, the largest 117 banks are in trouble.
"The stress tests will ask if they have enough capital to withstand their problems with both investments and loans," Moebs said. "The answer has been very clear ever since the bailout bill: they don't."
Why? Moebs gave three primary reasons: the departure from mark-to-market accounting, too many toxic investments and performance problems with whole loans.
"When you put those together, you're talking about some pretty bad damage in the top 25," he said.
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