Two powerful Republicans on Sunday called on Barack Obama, US president, to let some big banks fail instead of propping them up with public money.

Richard Shelby, the top Republican on the Senate banking committee, warned that the US would end up following the same path as Japan, which suffered a lost decade of economic growth by tackling its banking crisis too slowly, unless some big institutions were allowed to fail.

"Close them down, get them out of business. If they're dead, they ought to be buried," Mr Shelby told ABC News. "We bury the small banks. We've got to bury some big ones and send a strong message to the market."

The comments were made as experts debate whether the US should nationalise insolvent banks or allow the "zombie" institutions to fail.

The Obama administration is administering so-called stress tests on 19 leading financial institutions to see whether they can weather the economic climate. Citigroup shares dipped to below $1 last week as investors pummelled the financial sector.

Asked whether he was referring to Citigroup, Mr Shelby responded: "Well, whatever. Citi's always been a problem child."

John McCain, the Arizona senator who lost the presidential race to Mr Obama, said the administration had not make the "hard decision …to let these banks fail".

Mr Obama announced his nominations on Sunday for three top Treasury jobs in an effort to fill key positions that have remained vacant while his administration battles the financial and economic crisis.

The White House tapped Alan Krueger, a Princeton University professor and former labour department chief economist, as assistant secretary for economic policy - a crucial position under Timothy Geithner, the Treasury secretary.

Kim Wallace, a former congressional aide and Lehman Brothers employee, was picked as assistant secretary for legislative affairs, another crucial job as his administration works with Congress to develop plans to counter the financial and economic crisis, while David Cohen, a Clinton-era Treasury official, was tapped for the top job tackling terrorist financing.

Mr Obama has faced a string of setbacks in installing key officials across the government, including at Treasury, which critics say has hampered the department's ability to tackle the economic crisis.

Last week Annette Nazereth, who had been tipped for deputy secretary of Treasury, withdrew her name from consideration, as did Caroline Atkinson, a senior official at the International Monetary Fund who was expected to be named to head the department's international division.

While some appointees such as Tom Daschle, the former Senate majority leader who was tapped for health secretary, have withdrawn because of tax problems, others have not been named because the administration is being more vigilant in vetting candidates for top positions.

Mr Krueger, Ms Wallace and Mr Cohen have been serving as counsellors to Mr Geithner at Treasury.

But they are constrained in the range of activities that they can conduct until they are formally approved as assistant secretaries – the third-rung in the administration – by the Senate.

Get alerts on Richard Craig Shelby when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments have not been enabled for this article.