Sen. Dodd: Banks need to raise more capital

By John Poirier

WASHINGTON (Reuters) - U.S. Senate Banking Committee Chairman Christopher Dodd on Monday said he agrees that banks need to raise more capital to cushion against financial shocks in light of the problems at Bear Stearns Cos. Inc.

In a fire sale backed by the Federal Reserve, JPMorgan Chase & Co plans to buy Bear Stearns for $2 a share. The deal values Bear Stearns, until recently the fifth-largest U.S. investment bank, at about $236 million. That's more than 90 percent below the price of Bear's stock at Friday's close, when it finished at $30.85.

Asked if he thought banks need to raise more capital, Dodd said, "I do, I do," during a telephone call with reporters.

He said government-backed mortgage finance giants Fannie Mae and Freddie Mac need to do the same.

"I'm anticipating a conversation we'll be having with both Fannie and Freddie about acquiring more capital," Dodd told reporters. "They are the major source of liquidity today."

Dodd, a Connecticut Democrat, lauded the actions by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson for finding a buyer for investment bank Bear Stearns Cos. Inc, whose liquidity crisis surfaced quickly late last week.

Paulson, speaking to reporters on Monday after a White House meeting with President George W. Bush and his economic advisers, said Fannie Mae and Freddie Mae play an important role in the mortgage finance market.

"And it's important that they continue to play a vital role and continue to raise capital," Paulson said. "And I would say the same thing about a number of financial institutions."