Tim Geithner announces his bank nationalization plan

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No, it wasn’t billed as that. But it’s hard to read this section of the Framework for Regulatory Reform released by Treasury today any other way:

We must create a resolution regime that provides authority to avoid the disorderly liquidation of any nonbank financial firm whose failure would have serious adverse effects on the financial system or the U.S. economy. … We must cover financial institutions that have the potential to pose systemic risks to our economy but that are not currently subject to the resolution authority of the FDIC. This would include bank and thrift holding companies and holding companies that control broker-dealers, insurance companies, and futures commission merchants, or any other financial firm that could pose substantial risk to our economy.

In other words, Tim Geithner wants Congress to give him and the Federal Deposit Insurance Corporation clear powers to completely take over institutions such as Citigroup and Bank of America, if that becomes necessary. Because, as FDIC Chairman Sheila Bair said earlier this month, it doesn’t have those powers now. The FDIC can take over domestic bank operations pretty cleanly, but the non-bank and international divisions at Citi, BofA and a few other big banking companies are another matter. There are still issues involving international operations that this doesn’t address, but it’s a big step.

And, unlike the regulatory proposals that got the most attention in the media today, this isn’t a step planned for sometime in the indefinite future. Treasury has already delivered the proposed “Resolution Authority for Systemically Significant Financial Companies Act of of 2009” (61 pages of pdf fun) to Congress. Here’s what, if I’m reading the bill correctly, would seem to be the most potentially explosive part (from page 59):

For the purposes of carrying out the authorities granted in this section, there are hereby appropriated to the Corporation [FDIC] … such sums as are necessary, without fiscal year limitation.