Montage of money and the words "bank troubles"
Montage of money and the words "bank troubles" - 
Listen To The Story


Kai Ryssdal: A number of regional banks reported earnings today -- not so good. KeyCorp, Fifth Third and National City all showed losses. Some of those banks expressed interest in getting a share of the government's direct investment -- the bailout is another way to say that -- and so help turn their fortunes around, and possibly to buy other banks. From New York, Marketplace's Jeremy Hobson reports now on using taxpayer money to consolidate.

Jeremy Hobson: Treasury Secretary Henry Paulson said nothing about funding bank mergers and acquisitions when he laid out his plans for injecting billions in taxpayer dollars into banks.

Henry Paulson: Our purpose is to increase confidence in our banks and increase the confidence of banks. So that they will deploy, not hoard, their capital.

He also said nothing about not funding bank mergers and acquisitions. Karen Petrou is managing partner at Federal Financial Analytics. She says government-financed M&A's would be a big mistake.

Karen Petrou:

Mergers and acquisitions ought to be the province of institutions on their own, and if it's essential to rescue an institution, then we need to do that, I think, through the FDIC.

Petrou says putting the nation's banking system in even fewer hands would likely mean fewer mid-sized, regional banks. Making it even more difficult for small businesses to get loans.

Petrou: That's the risk, absolutely, with nobody in the middle. And we do need viable regional banks.

Cornelius Hurley directs the Morin Center for Banking and Financial Law at Boston University.
He says the government should take a seat on bank boards if it wants to keep banks from using taxpayer money for M&As.

Cornelius Hurley: I'd like to have our representative there saying hey wait a minute. Maybe we should be expanding the lending portfolio rather than acquiring this next bank with the money that we have available from the government.

After all, he says, getting banks to start lending again was the point, wasn't it?

In New York, I'm Jeremy Hobson for Marketplace.

Follow Jeremy Hobson at @jeremyhobson