NEW YORK, Feb 23: Beginning this week the top 20 American banks will be put to "stress test" to judge whether they could hold up even if the downturn worsens further than policy makers expect.
Banks shares dipped fuelled by the fear that government may nationalize the some of the banks. Officials feel that top 20 banks are too big to fail.
In yet another sign of distress for the banks, Citigroup officials were in active talks with federal regulators on Sunday evening about plans for the government to take a bigger ownership stake in the bank, the New York Times (NYT) in a report said today.
Big banks are exuding confidence that they remain relatively healthy and that with time and support from the government they will regain their footing. But many economists, Wall Street analysts and even some bank executives contend that some of the banks are effectively insolvent, the NYT said.
One hopeful sign for the US economy is that the federal deficit will shrink in spite of stimulus packages. President Obama is hopeful of halving the budget deficit that he inherited by the end of his first term. His maiden budget to be released on Thursday will show deficit falling to $533 billion by fiscal year 2013 against an inherited deficit that aides estimate at $1300 billion, a reputed paper said.
The deficit projected for this year will be higher than $1300 billion due to additional spending on the fiscal stimulus and other crises fighting measures. Revenue from the sale emission permits under a cap and trade system will help pay for the deficit reduction along with cuts in spending on the war in Iraq, higher taxes on wealthy individuals and businesses, the same paper said.
The European leaders who met in Berlin yesterday underpinned the urgency of sweeping proposals to regulate financial markets and clamp down on tax dodgers as they " sought a common position to combat the global economic crisis". The leaders agreed to double the financial resources of the International Monetary Fund ( IMF ) so that it could promptly bail out nations in need in an extraordinary international crisis.
Heads of the government and finance ministers of Germany, France, the UK, the Netherlands, Czech Republic and Luxembourg as well as the president of the European Commission and governors of the central banks met to forge a common European position before the impending G20 summit billed for April in London. US president Barack Hossain Obama is due to take part. France and Germany saw their way through for a seamless regulatory architecture in the face of stiff resistance from UK.
The European leaders argued that the IMF and Financial Stability Forum be vested with authority of monitoring and promoting the implementation of a 47-point financial action plan mooted at the first meeting of the G20 held in Washington in November. The leaders rejected the concept of protectionism created by US plan of " buy American ".
Switzerland known for its chocolates, watches and secret banking made it clear that it would not succumb to the US pressure to reveal the names of thousands of clients who have accounts in Swiss banks in a bid to dodge tax. Swiss finance minister was categorical in stating " that the disclosures last week of a limited number of account holders suspected of tax fraud did not mean that UBS or that Swiss government would bow to a separate US drive to identify all the bank's American clients with off-shore accounts in Switzerland".
Switzerland is home to one-third of world's off-shore assets and declared its determination not to undo the bank secrecy.
