Banks do not have enough tangible common equity to make the grade on Tim Geithner’s stress tests. That means the government will have to step in and bail them out. I will call this creeping nationalization.
Paul Miller of FBR Capital Markets does a good job of explaining the issues at hand here in this video via Bloomberg. The long and short is that banks do not have enough common equity. They are not going to get funds from the capital markets to top that equity up. That means the government will have to step in and dilute common shareholders with taxpayers’ funds — a reality we have seen with Citigroup but that is coming to a bank near you.