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Banking stocks have been volatile recently, partly because the government failed to aggressively counter notions of nationalization. The government finally issued more clarity about its intentions.

First, the Federal Reserve expressly stated it would not--I repeat, "not"--nationalize banks: “I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said at the Senate Banking Committee hearing.

Second, President Obama said the government will continue to do whatever it takes to support banks, but with reasonable restrictions: "[The recovery plan] means preventing the catastrophic failure of financial institutions whose collapse could endanger the entire economy." President Obama also signaled that executive pay and corporate junkets would probably be limited.

Overall, the federal government has explicitly signaled that the top nineteen banks are too big to fail. This policy seems reasonable if Bernanke's prediction--that the economy will stabilize by the end of 2009--comes true. Indeed, some banking stocks seem undervalued now that nationalization is no longer an option. Let's look at Wells Fargo (NYSE:WFC), for example:

From the Treasury’s Monthly Intermediation Snapshot report, submitted January 30, 2009:

Wells Fargo maintained in Q4 2008 its longstanding policy of not originating interest only, stated income, option ARM or negative amortizing mortgage loans.

Wells Fargo has reached 94% of its customers whose mortgages are two or more payments past due. For every 10 of these customers, we have worked with seven on a solution. Of those who received a loan modification, one year later, approximately 70% were either current or less than 90 days past due.

Wells Fargo added over 400,000 new household customers in the last year.

Sounds like there's at least one big bank that will come out of this crisis stronger.

Disclosure: I own shares of Wells Fargo (WFC).

Source: Wells Fargo Should Emerge from This Crisis Stronger