NEW YORK (Reuters) - The U.S. government’s latest bank rescue, this time a multi-billion dollar lifeline handed to Bank of America, has led to more talk of what once would have been unthinkable -- European-style nationalization of major American banks.

A U.S. two dollar bill is taped to the revolving door leading to the Bear Stearns global headquarters in New York March 17, 2008. REUTERS/Kristina Cooke

Few see the government nationalizing the entire banking system the way Sweden did in the 1990s, but the U.S. is growing more willing to put significant pressure on the largest banks.

Over time, the government could exercise the same day-to-day control over major U.S. banks as with IndyMac Bank, a failed California thrift that the U.S. government operated for much of last year.

“We’re nationalizing banks one at a time now. The real question is, will the biggest ones need to be nationalized?,” said Roy Smith, professor at New York University’s Stern School of Business.

The U.S. banking system desperately needs capital. Estimates of the shortfall range from $700 billion to more than $2 trillion.

That money will not come from the private sector as long as the pending losses are all but impossible to estimate.

Without private investors bailing out the sector, whose functioning is key to reviving an economy mired in recession, the U.S. government will have little option but to step up.

In earlier stages of the meltdown, the United States tried to penalize investors to the smallest extent possible when it intervened.

When Bear Stearns & Cos Inc failed, the government brokered a deal that ultimately resulted in Bear shareholders getting money, while debt holders lost nothing.

After that deal, regulators got tough, and let Lehman Brothers Holdings Inc fail. Chaos ensued.

Two months later, when the market lost confidence in Citigroup, the government bought preferred shares and warrants, giving it exposure similar to owning shares without diluting shareholders.

The transition team of president-elect Barack Obama, who takes office on Tuesday, has said it will seek more concessions from banks seeking capital than the Bush administration did.

Lawrence Summers, director-designate of the National Economic Council, promised congressional leaders this week to limit dividend payments and executive compensation at banks that are bailed out.

And there are signs that Citigroup C.N is facing significant government pressure. It has sold off a stake in the brokerage business that Chief Executive Vikram Pandit said he "loved" just a few weeks ago.

And the bank broke with the rest of the industry and supported bankruptcy legislation that detractors say will give consumers an incentive to file for bankruptcy.

People familiar with the situation said that regulators have been exerting more pressure on the bank since late November, when Citigroup got a second round of funding under the U.S. Treasury’s Troubled Asset Relief Program.

That $20 billion was on top of the $25 billion that Citigroup and other banks received in October.

And Bank of America, which received more help from the government in an anticipated announcement late on Thursday, is expected to face more government scrutiny as well.

A FAR CRY

But this sort of quiet exertion of authority is a far cry from full nationalization, where the government seizes all or nearly all of a bank’s shares, and makes day-to-day decisions and explicitly guarantees the company’s liabilities.

There are reasons to question whether full nationalization of the biggest banks is likely any time soon.

Nationalizing just one of JPMorgan Chase & Co, Bank of America Corp, or Citigroup, which together have about half the assets in the banking system, would double the Federal Reserve’s balance sheet instantly.

That could weigh on the dollar, which has already fallen some 17 percent against the Japanese yen since August.

And if the government were to nationalize one large lender, shareholders would likely lose confidence in other marginal banks.

“If you nationalize Citigroup, you’ll have to nationalize 10 other banks. It won’t just stop with one,” said Marc Snyder, senior financial stock analyst at Symphony Asset Management in San Francisco.

The banking industry itself is obviously opposed to nationalization.

“If it weren’t for the political power of the industry, nationalizing is what you’d want to do. It’s almost a no-brainer,” said Dean Baker, co-director of the Center for Economic and Policy Research.

But over time, the government will likely have little choice but to step in more completely, said Sean Egan, founding principal at rating agency Egan-Jones Ratings.

“It’s a slow-moving train wreck, and nothing can be done,” he said.