Stock price itself should have no bearing whatsoever on whether a bank can operate normally or not. However, in today’s world that is one of the biggest problems we face.

Not only does it cause panic which leads to a run on a bank’s assets, as you suggested, but now the ratings agencies (clueless as they are) take stock price into consideration when rating a firm’s creditworthiness. The low stock price alone doesn’t hurt the bank, but a credit downgrade due in part to the stock price level sure would.

That is why we have seen companies with adequate capital ratios either go under or be forced to sell themselves. It’s insane, but it’s the reality of what is going on.

The idea that Citi is somehow out of money and cannot meet its obligations is silly. Now, the fact that they have to raise more money and much of that capital is senior to the equity does mean the stock should go down. But a low stock price should not force the company to make bold moves (asset sales) just to disprove rumors.

More disclosures would certainly help, though, in terms of their financial situation. But the company has been silent, which implies the rumors are true. Don’t just say they aren’t true, show us why they aren’t true.

Something is puzzling me in this sentence: “The selloff in Citigroup shares has led executives to start laying out possible contingency plans.”

I’m not sure if I understand why a fall in stock price should by itself cause a bank to consider selling units. Is the relationship merely correlative, i.e. the decline in stock price reflects the shakiness of the business? Or is there something directly related to the stock price itself that causes the bank to have problems–perhaps a run on assets?