WASHINGTON (CNN) – Senate Banking Committee chairman Christopher Dodd suggested Friday that some troubled banks might need to be nationalized in the short term.
“I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd told Bloomberg’s Al Hunt when asked about nationalization. “I’m concerned that we may end up having to do that, at least for a short time.”
Shares in Citigroup and Bank of America fell Friday amidst fears that the two institutions could soon lose their independent status in a government takeover.
Dodd isn’t the first senator to hint at a government takeover of financial institutions. Republican Lindsey Graham of South Carolina said this week that the nationalization option should “remain on the table” if banks fail a "stress test" applied by the Treasury Department.
White House press secretary Robert Gibbs responded to the nationalization fears on Friday, assuring the public that the administration “continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government.”
UPDATE: Sen. Charles Schumer, who initially rejected the idea of nationalization, told The Huffington Post Friday that a government takeover of banks could be an option, but only as a last resort.
"It should be the last arrow in the quiver," Schumer said. He distinguished between short-term and long-term takeovers, explaining that an extended takeover would be "bad nationalization" because governments have historically proven to be poor managers of assets in the long run.
But short-term nationalization, he said, would allow the government to wipe out shareholders in "zombie banks" and clean up management before turning the banks back over to the private sector.