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Battering Highlights Banking Sector's Fragility

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Battering Highlights Banking Sector's Fragility

Business

Battering Highlights Banking Sector's Fragility

Battering Highlights Banking Sector's Fragility

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  • <iframe src="https://www.npr.org/player/embed/99681728/99681699" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Shares of Citigroup and Bank of America have bounced back after falling more than 20 percent Tuesday. Bank stocks plummeted after State Street, a bank thought to be relatively healthy, reported a huge loss on its investment portfolio.

ROBERT SIEGEL, Host:

Well, NPR's Jim Zarroli joins us now from New York and, Jim, Bank of America was down more than 20 percent yesterday and up more than that today. What accounts for that kind of volatility?

JIM ZARROLI: The big surprise yesterday was State Street Corporation, which is a money manager for big institutional investors, it reported big losses. And it's not just American banks - the Royal Bank of Scotland came out this week and reported the biggest loss in British corporate history. British banks are - they're just in so much trouble right now that it's hurting the value of the pound which fell to an all time low against the yen this week.

SIEGEL: Jim, are the problems of British banks due to the same factors affecting American banks?

ZARROLI: Another example was Bank of America, which was a healthy bank that decided to capitalize on the banking crisis by buying Merrill Lynch and Countrywide Financial. Well, it said last week Merrill's losses were a lot bigger than it thought and it had to ask the government for $20 billion to complete the deal, and that was on top of the $25 billion it had already received.

SIEGEL: Well, let's talk about what Geithner might do as secretary of the Treasury. As head of the Federal Reserve Bank of New York, was at the table as the Bush administration worked on financial rescue plans here for the best. What could he do on behalf of the Obama administration that hasn't already been tried?

ZARROLI: This is what happened in Sweden, which basically took over its banking system in the early '90s. Sweden was undergoing a financial crisis. It wanted to stabilize its banks, and what it did worked. Sweden was later able to come back and re-privatize its banks. The problem is U.S. banking sector is a lot bigger and more complicated. But, if this banking crisis keeps up, the government might not have a lot of choice and might have to consider what Sweden did.

SIEGEL: That's NPR's Jim Zarroli in New York. Thank you, Jim.

ZARROLI: You're welcome.

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