Analyst Warns on Wachovia Amid More Bank Worries
The latest note of caution came as the government moved to reassure people their money is safe in the nation's banks. Yet fears about the system persisted and financial shares plunged in premarket trading Tuesday, signaling another tough day for the stock market.Federal Reserve Chairman Ben Bernanke is scheduled to brief Congress Tuesday on the economy, which has been walloped by high energy prices and fallout from the housing slump and credit crunch. The testimony also comes amid a backdrop of rising oil prices and a slumping dollar, and as stock markets overseas tumble amid worries about the U.S. financial system.
Bernanke will also specifically address a rescue plan crafted over the weekend for mortgage financiers Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages -- almost half of the nation's total.
On Monday, shares of U.S. banks and financial companies swooned on concern that the government plan to shore up Fannie and Freddie would not be enough to keep them from failing, which could undermine the U.S. and global financial system.
National City Corp. shares fell nearly 15 percent on rumors of financial trouble, even though it said it was experiencing no unusual activity. Washington Mutual Inc.'s shares fell 35 percent amid worries about whether it had enough cash to handle the mortgage market downturn. WaMu said that it did.
Depositors lined up outside IndyMac Bank branches on Monday to pull their cash out after the savings and loan's assets were seized by the Federal Deposit Insurance Corporation on Friday. It was the largest bank failure since the collapse of Continental Illinois in 1984. It is estimated it could cost the FDIC between $4 billion and $8 billion out of the agency's $53 billion insurance fund.
In Asia and Europe, lack of confidence in U.S. regulators' ability to contain the problems sent shares tumbling.
But the government's top bank watchdog went on television to ensure people their deposits were not at risk, despite the brewing crisis.
"Insured deposits are absolutely safe," Sheila Bair, FDIC chair, said in an interview on CBS' "The Early Show." "The banking system as a whole is absolutely safe."