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The Treasury Department is considering making direct investments in banks in order to shore up capital-starved balance sheets.
U.S. stock markets traded up in early trading Thursday, but the news failed to keep fueling that momentum, and the Dow Jones Industrials dropped 678.91 points to 8,579.19.
Direct investments are among the powers Congress authorized as part of
the $700 billion bailout package enacted Oct. 3. The funds primarily
were to be used to acquire bad assets from financial institutions, but
Congress granted the Treasury discretion to take other actions deemed
necessary to stabilize the financial markets.
No investments in banks are imminent, and Treasury officials said general details of the program are still being worked out. More details about possible bank infusions and the asset buyback program are likely to be spelled out Monday when Neel Kashkari, treasury interim assistant secretary for financial stability, delivers remarks before the Institute of International Bankers in Washington. Treasury Secretary Henry Paulson discussed the possibility of investing in banks during remarks Wednesday. The financial rescue legislation "empowers Treasury to use up to $700 billion to inject capital into financial institutions, to purchase or insure mortgage assets and to purchase any other troubled assets that the Treasury and the Federal Reserve deem necessary to promote financial market stability. "We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size," he said. "We will design programs that encourage healthy institutions to participate." Paulson is highlighting the Treasury's ability to invest in banks now because the credit and stock markets continue to be in turmoil despite passage of the financial rescue package and the Treasury's and Federal Reserve's separate initiatives to inject hundreds of billions into financial markets. "Much attention has focused on the use of auctions to purchase troubled assets from financial institutions. We are moving as quickly as possible to organize and implement the most effective process possible." But "it will be several weeks before our first purchase." Direct infusions can be made as soon as Paulson's team maps out the details. Paulson also said he will step up efforts to coordinate global attempts to quell the financial crisis as problems spread internationally. This weekend Paulson will meet with his counterparts in the G-7 nations to "enhance our collective efforts" to deal with the crisis. He also called for a special meeting of the G-20 countries and regulators from emerging economies to mitigate the effects of market turmoil. - Bill McConnell Categories Deal Video
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