Fallout: The Financial Crisis

Government favors bank takeovers

Dan Grech Oct 21, 2008
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Fallout: The Financial Crisis

Government favors bank takeovers

Dan Grech Oct 21, 2008
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TEXT OF STORY

Renita Jablonski: Remember last week when the government offered to inject money directly into some of the country’s bigger banks? Well, half of that $250 billion rescue package has been invested. This morning, there are reports the other half will be used to help strong banks buy their weaker rivals. The question is, should taxpayers be footing the bill for bank consolidation? Marketplace’s Dan Grech reports.


Dan Grech: The government’s been trying to fortify banks to get them lending again. Like their big brethren, regional banks will soon apply to receive direct investments from Uncle Sam. And the New York Times reports the Treasury will favor those banks that are willing to takeover weaker rivals.

Bert Ely: Well, as some people would say, it has bad optics.

That’s banking consultant Bert Ely. He agrees that weak banks need to be acquired before they fail. But if they’re bought using taxpayer dollars, that would undermine the purpose of the rescue package.

Ely: Cash acquisitions will cause that capital to flow right back out of the industry. And I think that that is totally unproductive. It certainly runs contrary to the public interest.

Strong super-regional banks such as BB&T, Fifth Third Bancorp and SunTrust Banks are likely to apply for the Treasury funds. Democrats have argued that the money would be better used to help homeowners avoid foreclosure.

I’m Dan Grech for Marketplace.

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