What Bank Nationalization Means For You

Shares of Bank of America (BAC) and Citigroup (C) are at 18-year lows today on investor fears that they could be nationalized.

What Does It Mean? Nationalization will mean different things to different people, CNBC says. It’s as much a semantics debate as it is about political ideology.

What typically happens is that the FDIC shuts down an insolvent bank, then takes control while trying to find a buyer. The necessary capital is supplied to the new buyer and insured deposits are protected and the bank reopens under new management.

This is what’s going to happen if the current rescue measures don’t pay off.

Success Story. Sweden is one of the most popular examples of a successful nationalization. Their 1990s crisis was smaller in size and involved traditional real estate assets, but they injected capital into some institutions, separated the bad assets, replaced management, ran them and then sold them back into the market. The ultimate cost to taxpayers was low. The United States also used nationalization to resolve the savings and loan crisis of the late 1980s.

Shares Under Stress. Bank of America and Citi could be nationalized first, which is sending their shares down 20% and more. In many ways, banks have already lost control of their destinies: the government is a major investor and politicians are pushing the industry to lend, says Alistair Barr for MarketWatch.

• KBW Bank (KBE) has lost 50.6% since the first of the year; Bank of America is 7.5%; Citi is 6.3%.

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