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Bernanke offers glimmer of hope amid the gloo -

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ELEANOR HALL: In the United States, the US central bank says it expects the unemployment rate to
continue to rise dramatically to almost nine per cent by the end of this year.

US house prices are falling at a record pace and consumer confidence is at its lowest level ever.

But despite this, the chairman of the US Federal Reserve did manage to deliver some reassuring news
to Wall Street, which rebounded after he addressed the US Congress.

Ben Bernanke told the Senate Banking Committee that regulators were not planning to nationalise US
banks.

This report from Washington correspondent Kim Landers.

KIM LANDERS: Speculation in the United States that some American banks were going to be
nationalised sent stocks on Wall Street to a 12 year low yesterday.

The major indexes have recovered today thanks to Federal Reserve chairman Ben Bernanke, who says
the authorities just want to make sure the banks are solvent.

BEN BERNANKE: We don't have to take them over to do that, we've always worked with banks to make
sure that they're healthy and stable and we're going to work with them.

I don't see any reason to destroy the franchise value or to create the huge legal uncertainties of
trying to formally nationalise a bank when it just isn't necessary.

KIM LANDERS: Speculation about the nationalisation of banks has centred on Citigroup, with
unconfirmed reports the Government could take a 40 per cent stake.

On Capitol Hill today, Republican Senator Bob Corker has quizzed Ben Bernanke about the
nationalisation speculation.

BOB CORKER: But it seems to me that this has been creating this sort of dead man walking, sort of
zombie-like banking scenario, and while I have been not using these words out around, it seems to
me that what you have explained is a creeping, a creeping nationalism of our banks.

BEN BERNANKE: I think zombie was not an appropriate description for any of the banks, I think they
all have substantial franchise value, they're all lending, they're all active, they have
substantial international franchises, so I don't think that's an accurate description.

But the point I want to make is that, even as we put capital into these banks, we're not standing
by and letting them do what they want, to take risks or to continue to operate in inefficient
manner. We're going to be very tough on them.

KIM LANDERS: Ben Bernanke won't use the term nationalisation.

He's suggesting the phrase public private partnerships is a better one.

The Federal Reserve and the US Treasury have said they could convert Government stocks in some of
the banks from preferred shares to common shares.

Whether or not that happens will depends on so-called stress tests on America's 20 biggest banks,
which begin tomorrow.

BEN BERNANKE: The outcome of the stress test is not going to be fail or pass; the outcome of the
stress test is how much capital does this bank need in order to meet the needs of the, the needs of
the, the credit needs of borrowers in our economy.

KIM LANDERS: And Ben Bernanke says the Government doesn't need majority ownership in a bank to help
stabilise the financial system.

Dan Alpert is managing director of Westwood Capital.

DAN ALPERT: This all comes down to the same thing, the stress test is all about trying to value
these banks, making sure that we have enough cash throwing at them in order to fill in the gap
between assets and liabilities.

Right now, I believe many of the banks are functionally insolvent.

KIM LANDERS: Ben Bernanke says the major banks are solvent.

But Dan Alpert is arguing that piecemeal steps to shore up equity in banks, isn't a good strategy.

DAN ALPERT: I don't really like this incrementalism, this whole notion of well we'll find out how
bad they are then if they get worse we'll add more capital and we'll do this little by little.

Sounds like Japan, it really does, it's starting to get a little like water torture.

KIM LANDERS: Meanwhile Ben Bernanke has also offered a glimmer of hope about America's economic
future.

He says the recession might end this year, but only if action to stabilise the financial markets
and the economic stimulus package work as expected.

But he's also warned that a full economic recovery might take two or three years longer.

This is Kim Landers in Washington for The World Today.