Following a wave of fear that swept stock markets Friday over the possibility of the U.S. government nationalizing banks, the White House reaffirmed its commitment to a private banking system.

Markets took a dive after Senate Banking Committee Chairman Christopher Dodd said the U.S. may have to temporarily nationalize some banks.

At a press briefing, White House press secretary Robert Gibbs said the Obama administration continues to "strongly believe that a privately held banking system is the correct way to go."

Speculation about bank nationalization picked up credence earlier on Friday with comments from Senator Dodd.

"I don't welcome that at all, but I could see how it's possible it may happen," he said on the Bloomberg Television's Political Capital with Al Hunt, which will be broadcast later on Friday. "I'm concerned that we may end up having to do that, at least for a short time."

That sent Bank of America shares down 20% to a 52-week low of $3.11 a share, while Citigroup Inc. shares plummeted more than 24% to $1.90, also a 52-week low.

The Dow Jones Industrial, dragged down by financials, fell below its lowest close since 1997.

Following the White house comments, however, stocks turned a corner and erased much of their losses.

By Stephen Huebl and edited by Sarah Sussman
©CEP News Ltd. 2009