Stocks were trading lower on Monday after opening with a gain, as the government paved the way for possible nationalization of troubled banks.
The U.S. Department of the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board today issued a joint statement today which said that the government will implement its Capital Assurance Program on Feb. 25 and describes how a temporary nationalization could occur.
Banks which fail the government's new stress-tests will be provided capital in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position, a provision which explicitly allows for nationalization.
Regarding cash injections which have already been made under the TARP, those funds will also be eligible to be exchanged for the mandatory convertible preferred shares.
In recent trade, the DOW was moving lower by 2.30%. The broader S&P 500 was lower by 2.54% and the NASDAQ by 2.69%. The XLF financial sector ETF was lower by 1.34%.
The dollar, which had gained overnight, was recently trading mostly higher on the day with a 0.66% gain on the euro, a 1.41% move up on the yen and a 0.23% gain against Australia's currency as it lost 0.55% to the pound.
Crude for March delivery was recently moving lower by $1.03 (-2.62%) to $38.97 per barrel.
Gold for April delivery was lower by $5.30 (-0.53%) to $996.50 per ounce as traders took a bit of the recent profits out.
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