BT: US banking system is sound: Paulson (21 Jul 2008)

US banking system is sound: Paulson

99% of the 8,500 US banks fall into the highest category of capitalisation

(WASHINGTON) The US banking system is fundamentally sound despite the highly publicised IndyMac failure, US Treasury Secretary Henry Paulson said yesterday, as he listed financial system stability as his top economic priority.

'Our banking system is a safe and a sound one,' Mr Paulson said during an advance taping of CNN's Late Edition. Federal regulators this month took over failed mortgage lender IndyMac. It was the third largest banking failure in US history, and the lines of frustrated depositors outside the bank provided a stark illustration of the US home financing crisis.

But Mr Paulson said that just five US banks have failed this year compared with an annual average of about 250 during a decade- long crisis in the US savings and loan industry that began in 1982.

He said that about 99 per cent of the 8,500 US banks, with about 99 per cent of bank assets, fell into the highest category of capitalisation, a measure of financial health.

At the end of the last quarter, the number of problem banks on the Federal Deposit Insurance Corp's (FDIC) watch list ticked up to 90 with combined assets of US$26 billion from 76 with US$22 billion at the end of 2007.

Mr Paulson said that it was crucial for the US economy that the housing crisis end as quickly as possible, and key to that was ensuring confidence in US financial markets.

Last Sunday, market worries over home mortgage giants Fannie Mae and Freddie Mac prompted the Treasury Department and Federal Reserve to unveil a plan to offer massive aid to the two companies.

Treasury asked Congress for unlimited authority to lend money to the troubled mortgage companies and to buy their stock if necessary to inject fresh capital. Some Republican lawmakers have baulked at the prospect of a 'blank cheque' that could cost US taxpayers billions of dollars.

'The stability of the capital markets - that's my number one priority,' Mr Paulson said. 'It's very important right now that we do what we can to increase the confidence in the capital markets, the stability of the capital markets, and these two institutions are very important.' - Reuters



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