Treasury to start bailing
It will use $125 billion of the bailout plan to bolster nine banks and get credit rolling again.
WASHINGTON - The Treasury Department said yesterday that it would start doling out $125 billion to nine major banks this week to get credit flowing again.
The hope is that the money will give stock markets in the United States and overseas confidence that the federal government's moves would stave off a protracted recession. Investors did not seem assured yesterday, as stocks fell sharply around the globe.
Assistant Treasury Secretary David Nason said the deals with the nine banks were signed Sunday. They are designed to bolster the banks' balance sheets so they will begin more normal lending to one another and to customers.
The action will mark the first deployment of resources from the government's $700 billion financial-rescue package passed by Congress on Oct. 3.
The bailout package has undergone a major change in emphasis since it was passed by Congress. Treasury Secretary Henry M. Paulson Jr. decided to use $250 billion of the $700 billion to make direct purchases of bank stock, partially nationalizing the country's banking system, as a way to get money into the financial system quickly.
The plan is also aimed at clearing banks' balance sheets of bad assets. That effort has yet to begin, although the administration expects to use $100 billion to buy bad assets in coming months.
The deployment of the first $125 billion to the major banks was delayed while the government and the banks worked out details for the purchases. Nason, a key architect of the rescue, said yesterday that those agreements were signed late Sunday night.
Treasury also is starting to give approval to major regional banks, with the goal of getting another $125 billion in stock purchases made by the end of this year.
KeyCorp, of Cleveland, said yesterday that it would issue stock for a $2.5 billion infusion of capital from the government. SunTrust Banks Inc., of Atlanta, also said it had received preliminary approval from Treasury for a $3.5 billion investment. Capital One Financial Corp., of Washington, will receive an investment of $3.55 billion.
In all, about 15 regional banks have received a preliminary OK for the government to make stock purchases.
The Federal Reserve also began a major initiative yesterday to unclog frozen credit markets by purchasing commercial paper, the short-term loans that businesses use to fund their daily operations.