Bank Fix Lacks Consensus

Bank regulators on Monday attempted to wipe away some of the uncertainty created by the government's response to the financial crisis, as analysts, economists and other experts lacked consensus on how to best fix the malaise.

Five regulatory agencies, including the Treasury Department, Federal Deposit Insurance Corp. and Federal Reserve issued a joint statement assuring investors that explicit nationalization of the banking system was not an option on the table. The fear that banking giants Citigroup (C Quote) and Bank of America (BAC Quote) could be taken over by the government sent the stocks spiraling on Friday, before both companies and the White House calmed nerves, stemming a wider market selloff.

The regulators said the federal government intends to continue to provide capital for institutions that cannot get money from the private sector in exchange for preferred shares, to be converted into common equity over time.

"Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands," the regulators said.

Shares of Citi and BofA rallied on the implicit assurance that they will remain in private hands to some degree. Though their slide last week was less severe, shares of other major banks like JPMorgan Chase (JPM Quote) and Wells Fargo (WFC Quote) also rallied Monday.

While investors might be more confident that banks will remain in the private sector, there is still a labyrinth of uncertainty about the future of major institutions. Investors don't know what lurks within banks' balance sheets, whether anyone will buy their troubled assets, what firms will survive the government's stress tests, how much shareholders will ultimately be diluted via government aid, how much more pain the economic contraction will bring, and when the losses will end.