Nationalization is the process of the government taking over a going concern with the intent of operating it.  Though a bridge institution is the most likely outcome when a large financial firm fails, the goal is for the firm to be reprivatized as quickly as possible.  In addition, subject to regulatory agency oversight, the bridge firm would be managed by private sector managers selected for their experience in operating well-run, large, complex organizations.

Whatever you may think {nationalization} means, I don't see the U.S. government operating a large institution for an extended period.

In fact, based on where we stand today, I would be surprised if the FDIC had to step in as conservator or receiver of a large, systemically important institution. The regulators' Joint Statement last week restated our commitment to preserve the viability of systemically important financial institutions. This will be done through capital injections, if needed, and the supervisory process.

If more direct intervention to take over a large financial group is needed, that will present significant challenges. The main hurdle is that there's no clear process for resolving a large financial holding company with multiple affiliates. We have a process for dealing with large banks, but not financial conglomerates.

Many have pointed to the FDIC's model of resolving failed banks as a possible solution. I believe the FDIC model is tried and true...But clearly, there would be practical problems if we had to use our resolution process for a large, internationally active institution. First, we do not have authority to resolve financial holding companies. Our powers extend only to federally insured banks.

Second, there is a very real question of whether our current funding mechanism is adequate to deal with the failure of a very large institution...

Another major problem, which has received less attention, is the difficulty in handing a cross-border failure. The key question is: What you do when more than one country is regulating a piece of the institution?

Nationalization, to my mind, is when the government seizes the bank, zeroes out the shareholders and begins to manage and run the bank. And we don't plan anything like that.

It may be the case that the government will have a substantial minority share in Citi or other banks. But again, we have the tools between supervisory oversight, shareholder rights and other tools to make sure that we get the good results we want in terms of improved performance without all the negative impacts of going through a bankruptcy process or some kind of seizure, which would be, I think, disruptive to the market.

From the Q&A session