Fed will buy stake in banks of all sizes
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Tess Vigeland: While Ben Bernanke was speaking on Capitol Hill, Treasury Secretary Henry Paulson made his way to a different microphone to fill in details on that $250 billion plan to buy equity in some of the nation’s largest banks. And he made clear it’s not just the big guys who are invited to step up to the trough. Ashley Milne-Tyte has more from New York.
Henry Paulson: In addition to the nine banks who announced their participation last week, we’ve received indications of interest from a broad group of banks of all sizes.
Ashley Milne-Tyte: Secretary Paulson didn’t specify how much money a bank has to have in reserve in order to join the capital infusion program. He said the Treasury’s plan is to let any bank apply. Ben Wallace is a securities analyst with Grimes and Company. He says that should protect smaller banks.
Ben Wallace: If you come out and give a specific number, you know, a certain capital ratio or what have you then any bank that is at risk to fall below that or is right on the border of that could come under pressure.
If some banks were to be excluded from the scheme, they’d risk losing trading partners or depositors. That’s exactly what the Treasury is trying to avoid. Still, Wallace says institutions wishing to participate face some hurdles.
Wallace: Well if a bank is in good condition why do they need to participate in this, you know, it’s the Groucho Marks, who would want to be a member of a club that would have me as a member?
Paulson didn’t address any of the risks of the program in his speech. Bart Narter is a banking analyst with consulting firm Celent. He says the secretary simply touted the benefits to taxpayers and left a lot of questions un-answered.
Bart Narter: I think that the Treasury has to explain whether the purpose of this investment is to shore up weak banks, and therefore experience a great deal of risk, or whether it’s to get a return on the investment.
Narter says this plan obviously helps the banks, but it could leave ordinary Americans on the hook.
In New York I’m Ashley Milne-Tyte for Marketplace.
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