The Bush administration is considering taking ownership stakes in certain U.S. banks as an option for dealing with a severe global credit crisis, according to an Associated Press report.
An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.
This official said all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has caused the biggest upheavals on Wall Street in seven decades and continues to roil global markets.
Supporters of this approach, such as Sen. Charles Schumer, D-N.Y., argue that injecting fresh capital into U.S. banks that want to participate in the program would be an effective way to bolster banks’ balance sheets and get them to resume lending. Taxpayers would benefit because the government would receive an equity stake in the bank in return for providing the capital.
“This idea would, at a minimum, complement the administration’s planned approach of buying up troubled assets and may prove to be the most promising tool of all in Secretary Paulson’s kit,” Schumer said in a statement.
A decision to inject capital directly into financial institutions in return for ownership stakes would be similar to a plan announced Wednesday (Oct. 8) by Britain.
Treasury Secretary Henry Paulson told reporters that Treasury was moving quickly to implement the $700 billion rescue effort and he specifically mentioned reviewing ways to bolster the capital of banks.
“We will use all the tools we’ve been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size,” Paulson said at a Wednesday news conference.