From The International Herald Tribune:
U.S. decides on how to save banks
By Stephen Labaton
Saturday, February 7, 2009
WASHINGTON: After weeks of internal debate, the Obama administration has settled on a plan to inject billions of dollars in fresh capital into banks and entice investors to purchase their most troubled assets.
The new financial industry rescue plan, to be outlined in broad terms on Monday in a speech by Treasury Secretary Timothy Geithner, will not require banks to increase their lending. That is despite criticism that institutions that already received money from the Troubled Asset Relief Program, or TARP, either hoarded it or used the funds to acquire other banks.
The incentives to investors could be in the form of commitments to absorb some of the losses from any assets they purchase, should their values continue to decline. The goal is to relieve the banks of their worst assets so that private investors might then provide more capital.
Officials hope that that part of the plan is not labeled a “bad bank” administered by the government, although they expect that some might call it that.
No matter what it is called, the government would assume some of the risk of declining assets at the heart of the economic crisis. But by relying on a combination of private investors and government guarantees, the administration hopes to reduce its exposure to losses and avoid the problem of having to place a value on assets that the institutions have been unable to sell.
A central element of the plan would be a major expansion of a lending facility begun in November by the Federal Reserve Bank of New York when it was headed by Geithner. The program, which was initially financed by $200 billion in Fed money and $20 billion in seed capital from the $700 billion bailout fund, lent money to investors to buy securities backed by student, auto and credit card loans, as well as loans guaranteed by the Small Business Administration.
Obama administration officials say they have rejected nationalizing institutions by taking large ownership stakes. They also will not immediately seek additional money from Congress beyond the $350 billion left in the TARP fund.