In an interview today in Washington, former Fed Chair Alan Greenspan signaled that the financial crisis has yet to end. He warned that U.S. banks must raise ‘large’ amounts of money.
From Bloomberg: “There is still a very large unfunded capital requirement in the commercial banking system in the [U.S.] and that’s got to be funded,” Greenspan said…He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”
Greenspan’s comments suggest he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders.
A lack of capital at banks may inhibit lending to consumers and businesses, tempering any economic recovery. The former Fed chief…said that the continued slump in home prices is putting at risk millions of borrowers.
“We’re on the edge and if this thing doesn’t get resolved quickly I’m worried,” he said before a meeting with House of Representatives members on financial regulation…
Home prices will only start to stabilize once the “liquidation” rate of single-family homes has peaked, he said. “I don’t think we’re there yet.”
Greenspan’s comments seem a bit contradictory. Only a few days ago he said he was seeing ‘seeds of bottoming’ in the housing market.