Worried that participation in the federal government's capitalization program will unfairly label them as financial shaky, the American Bankers Association sent a letter to Treasury Secretary Henry Paulson asking him to clarify that accepting investment from Washington is not "asking for a handout." ABA also called on Paulson to spell out what new regulations would apply to banks that participate.
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Paulson on Tuesday announced that the Treasury plans to invest $250 billion in the country's banks in order to give them the extra capital needed to thaw the frozen U.S. credit markets. Nine of the country's largest banks are receiving $125 billion while the other half is slated for the rest of the industry. In return for the money, banks must provide the Treasury with preferred shares in their operations.
Edward Yingling, ABA president and CEO, said many bank executives have expressed interest in participating in the program, but worry that institutions that do will be "falsely labeled" by the media and the public "as needing government support, or of appearing to be asking for a handout." He also said banks are wary of the enhanced regulatory requirements regulators say they will impose on participants but have not been spelled out.
Yingling noted that the great majority of banks are well capitalized and generally capable of increasing loan portfolios through deposits. "In many cases these banks are attracting new deposits in this economy and are capable of increasing their loan portfolios in a prudent manner," Yingling wrote. However, they do not have the capital to expand their lending sufficiently "to help fill the gaps in credit availability and move our economy forward."
"These banks never asked the government to create a program to make capital available, nor do they need it to continue to be strongly capitalized, solid banks," he said. "There is simply no reason for these banks to run these risks to their reputations or their economic futures."
Similar concerns apply to the debt guarantee program, he said. - Bill McConnell
