Shares Bank of America (BAC) and Citigroup (C) continued to take hits on Thursday as investors remained concerned the banks could be nationalized.


The Treasury's plan to stress-test twenty of the nation's largest banks, announced last week by Secretary Tim Geithner, is causing investors to speculate that BAC and C won't survive the new requirements, although little of the actual details is known at this point. Apparently, regulators will examine the banks under worst-case scenarios, using their off-balance sheet assets (typically, the toxic, illiquid ones tied to failed mortgages and other soured loans) against their capital requirements.


Investors are unsure of a banks' ultimate fate should it fail the tests. Government officials have been talking down the prospects of nationalization recently although the door to that option remains open.


Ben Bernanke, the chairman of the Federal Reserve, expressed skepticism Wednesday about the prospect of nationalizing troubled banks and suggested that President Obama’s administration would much prefer to keep financial institutions in private hands.


“As a general rule, it’s very challenging for governments to manage banks for a protracted period,” Mr. Bernanke said.


Later, he added, “Whatever action would need to be taken at one point or another, there’s a very strong commitment on the part of the administration to keep banks private and return them to private hands as quickly as possible.”


The new Treasury secretary, Timothy Geithner, has given little indication that any such thing is under consideration. “Governments are terrible managers of bad assets,” he recently said.


President Obama has also talked down the possibility of nationalization, but it did say the administration will take any necesary steps to fix the financial crisis. He also has said previously it was likely that some banks would not survive.


There also are concerns regarding larger institutions which have acquired failed banks. Wells Fargo shares fell on Wednesday to their lowest level in almost 12 years before recovering amid fears the fourth-largest U.S. bank could cut its dividend and post higher losses after its purchase of Wachovia.


The combined Wells Fargo and Wachovia last month posted a $13.72 billion fourth-quarter loss as it set aside more money to cover sour mortgages and other bad loans. Wachovia legally joined Wells Fargo on Dec 31, 2008 and the two banks are formally integrating now.


Wells Fargo was once considered conservative in its assessments of Wachovia’s loans. But investors and analysts have grown more worried about the bank’s assumptions as market conditions deteriorated rapidly, particularly for loans known as “option adjustable rate mortgages,” which allow borrowers to choose whether to repay principal or just interest each month.