The Wall Street Journal is reporting that Treasury Department officials are considering ways to expand the bailout to include smaller, non-publicly traded banks, “potentially opening up the program to thousands of new institutions.”
Keep in mind that we still really have no idea how the Treasury Department is deciding which lenders qualify for capital infusions. For some reason, that’s still secret.
Update: The Wall Street Journal has now posted a full article on the burgeoning bailout. It looks like this latest move to expand the list of those on the dole is just straight out bribery to get private banks to go along with the financial rescue plan. You didn’t really think this was going to be confined to failing banks or those whose collapse would cause systemic risk did you? It’s now more or less an entitlement program for banks.
From the Journal:
Such a move could serve as a peace offering to the politically powerful community banking industry, which has been outspoken in its criticism of Treasury’s execution of TARP. The decision to provide billions of dollars in rescue money to some of the nation’s largest banks has stoked fears among smaller rivals that the government is encouraging consolidation of the industry at their expense.
Banking industry officials argue that privately held firms may be able to better use the new capital than their larger rivals. Non-public banks are typically more conservatively run and may be more ready to lend money back into the financial system, said Wayne Abernathy, executive vice president of regulatory affairs at the American Bankers Association. “Most of these privately held banks they are probably healthier than the industry as a whole,” Mr. Abernathy said.
Mr. Abernathy was part of a group of ABA officials who met Tuesday afternoon with Treasury to discuss including non-public banks. He said Treasury appeared open to creating a different set of eligibility rules for non-public banks, calling the process “very methodical.” A Treasury spokeswoman declined to comment.
The banking industry’s trade group estimates that as many as 6,500 closely held financial institutions aren’t eligible for the capital program under the current rules. In part, that’s because their structure doesn’t permit them to issue preferred shares that the Treasury would buy. Firms have also balked at the idea of Treasury requiring warrants from firms that participate in the rescue plan, because such a move could compromise their status as a privately-held business because of limits on the number of shareholders an institution may have.
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