Can Treasury ownership help banks?
Seal of the U.S. Treasury Department
TEXT OF INTERVIEW
Bill Radke: Bailouts, rescue packages, rate cuts, and credit markets are still stuck. Today, the New York Times reports, the Treasury Department is considering going further and taking ownership stakes in many U.S. banks.
Marketplace's Jeremy Hobson is in New York. Jeremy, what's this all about?
Jeremy Hobson: Well Bill, as you know they have tried everything to restore confidence in the banking system. They have thrown the gold-plated, diamond-encrusted kitchen sink at the banking system. They've injected liquidity yesterday, they announced this half-point interest rate cut. And of course, then the bailout plan to take all those bad assets off the balance sheets of the bank. They've tried to make it as easy as possible for banks to get loans so that they'll start lending to others. Now according to the New York Times, it appears the Treasury does not feel this has been sufficient and they need to do something to put some confidence in the banking system. So what's under consideration is to actually take an ownership stake in some of these U.S. banks that are struggling.
Radke: This sounds a lot like what we heard from the U.K. this week.
Hobson: Absolutely. The British government announced yesterday that it would inject about $44 billion to keep its banking system from collapsing. And of course, that came the day after the Royal Bank of Scotland, one of the biggest lenders in the U.K., saw its share price drop by almost 40 percent.
Radke: So what are the downside risks of taking this action?
Hobson: Well, there are reports in the Times that there's concern at the Treasury that by taking an ownership stake in certain banks, you could scare investors away. That investors would see that, see that the banks are struggling, and pull out themselves. So you could have the opposite effect of what the Treasury would like. And also, of course, taxpayers ultimately would be at risk.
Radke: Marketplace's Jeremy Hobson in New York. Thank you, Jeremy.
Hobson: Thanks, Bill.