The recent round of government bailouts for large banks has caused growing concern that the government may nationalize them, which means that the banks would be owned and operated by Uncle Sam.

The concern is that should banks become nationalized, common and preferred shareholders would likely be eliminated.

What’s the Price of the Government’s Bailout Money?

In exchange for the bailout money, 314 banking institutions signed over some of their shares and securities to the Treasury.

The Wall Street Journal reports that the government could step in and take ownership of some of these banks.

Bankruptcy Nationalization in the Past

In Western countries, bank nationalization is generally used in emergency situations to keep financial institutions from going bankrupt.

Sweden, France and the U.S. have nationalized banks before and France may be on the brink of doing it again.

How Would Bank Nationalization Affect Consumers?

If banks were nationalized, it could make getting loans easier for some, stop foreclosures and deposits would still be federally insured, just as they are now because the FDIC is backed by the U.S. government and is able to borrow money from the Treasury.

If banks were nationalized, consumers would also likely be able to qualify for loans they would be denied in the current tight credit market.

People with less-than-perfect credit might also benefit if nationalized banks offered basic credit cards with low interest rates.

These credit cards would allow consumers to start spending again, but would likely come without the perks and rewards programs currently offered on many cards.

Nationalized banks would also probably stave off the wave of foreclosures that are plaguing the country, while allowing homeowners the opportunity to keep their property.

But nationalization could come with drawbacks as well, such as possible branch closings, fewer new products and erosion of customer service. (Anyone who has ever waited in line at the DMV or attempted to call the IRS can imagine what the service level of banks might become if they are owned by the federal government.)

Could All Banks Be Nationalized?

The government only has the ability to take over the largest and most important banking institutions.

It would be too expensive and impractical for all American banks to be nationalized; however, it’s possible that some of the independent banks could turn toward filing bankruptcy, leaving Americans with no options outside of the nationalized banks.