Financials Bounce After Bair Says Banks Are Well Capitalized

Roubini vs. the F.D.I.C. Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, seemed to be addressing economist Nouriel Roubini directly after the NYU professor said yesterday that losses at U.S. banks will reach $3.6 trillion and that the system is basically insolvent.

Bair rejected predictions in some areas that the bank industry as a whole is facing ruin, though she did acknowledge problems.

It was a tough quarter. We knew it was going to be a tough quarter. Banks have some real challenges, Bair said during a CNBC interview. But I think it needs to be emphasized and re-emphasized these banks are solvent, they're well-capitalized overwhelmingly, and that really is what creditors and depositors seem to be focusing on right now.

Bair said 98% of all banks are well-capitalized, representing 99 percent of all assets.

There is a fear factor, she said. You're seeing that in the stock market, you're seeing that in other places. People don't know how bad the economy is going to get, what the outer limit on these losses could be.

Bair has been one of the leading proponents of what's been called an 'Aggregator Bank,' which would purchase and hold non-performing bank assets. Fed Chairman Ben Bernanke also is a supporter of the idea.

The aggregated bank might have an advantage in the sense that it actually moves the assets off the balance sheets, freeing up better lending capacity, which is really the whole public purpose of all these initiatives, she said.

The DOW Financial Index gained nearly 11% on the day and that carried to overall market higher after yesterday's steep sell-off. At the close of floor trading on the NYSE the DOW was on 8228.02 after gaining 278.93 points (3.51%) while the S&P finished on 840.22, up 35.00 points (4.35%). The NASDAQ was the biggest percentage winner for the day, closing on 1507.07 with a gain of 66.21 points (4.60%). Bonds were sold as stocks advanced during most of the session. The yield on the 2-year note rose 4.8 basis points to 0.753% while yield on the benchmark 10-year note rose 14.8 basis points to 2.524%. The dollar traded in risk acceptance mode as stocks began their rally at about 11:00 EST, falling 0.78% on the euro, 0.27% to the pound and 1.77% against Australia's currency. The yen jumped after options expired at 10:00 EST, and the dollar ended up losing 0.40% for the day.

Crude oil for March delivery was recently trading up $3.25 (7.93%) to $44.08 per barrel.

Gold for February delivery was recently trading down $3.60 (-0.42%) to $851.00 per ounce.