Treasury Said to be Encouraging Bank Mergers and Lendingby Tim Manni
“You will lend” was the implicit message passed on to the initial nine banks that received capital injections as apart of the $250 billion TARP program. “We expect all participating banks to continue to strengthen their efforts to help struggling homeowners,” said Treasury Secretary Henry Paulson in a New York Times article yesterday. The simple message here is, “if you’re deemed too big to fail, you must function.”
The Treasury Department is well on its way to rebalancing the entire structure of the banking system. Not only is the Treasury asking the chosen financial institutions that are receiving capital in exchange for preferred shares to jump start the credit markets, they are also urging new bank mergers in order to create fewer, but stronger institutions:
“Treasury doesn’t want to prop up weak banks,” said an official who spoke on condition of anonymity, because of the sensitivity of the matter. “One purpose of this plan is to drive consolidation.”
The point here is to spread the systemic risk among more stable, well-capitalized banks. The nine banks that were chosen because they “influenced markets to the greatest degree,” says HSH Vice President Keith Gumbinger.