White House: Banks should be privately held

updated 8:27 p.m. ET Feb. 20, 2009

WASHINGTON - The White House is standing by the private banking system.

White House press secretary Robert Gibbs was asked Friday about speculation that the Obama administration may seek to nationalize two financial bellwethers, Citigroup Inc. and Bank of America Corp.

Gibbs responded that the administration continues to "strongly believe that a privately held banking system is the correct way to go." Along with that, he said, the government must ensure that banks are sufficiently regulated.

Said Gibbs: "That's been our belief for quite some time, and we continue to have that."

Gibbs was pressed for more details on his answer — specifically whether Obama would not nationalize banks. He said it was hard for him to be any clearer.

When a reporter suggested Gibbs could do that by saying that Obama would never nationalize banks, Gibbs would not make that statement, but emphasized: "I think I was very clear about the system that this country has and will continue to have."

Shares of Bank of America , Citigroup and Wells Fargo & Co fell more than 20 percent after Senate Banking Committee Chairman Christopher Dodd said the nationalization of some banks could be needed "at least for a short time," according to a Bloomberg report. Their decline contributed to dragging the major stock indexes lower.

In response, Bank of America spokesman Robert Stickler said "We see no reason to nationalize a bank that is profitable, has strong capital and strong liquidity and is lending actively."

When asked about nationalization, Citigroup spokesman Jon Diat said in an e-mailed statement that the bank's capital base is "very strong" and its Tier-1 capital ratio is "among the highest in the industry."

The statement from the White House appeared to calm some of the market's jitters. Shares were off their lows of the day, although they were still down on worries about the global economy.

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