The Treasury should weigh carefully whether to expand its $700 billion rescue package to include nonbank lenders like GE Capital or CIT Group Inc., say commercial bankers. These types of lenders have asked Treasury to consider capital investments along the lines already in the works for banks and insurers. Nonbank commercial lenders do not collect deposits but do compete with banks for corporate borrowers.
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Congress passed the administration's $700 billion rescue plan, officially called the Troubled Asset Relief Program, or TARP, in September as a means of strengthening banks and getting credit flowing again. Of that $250 billion is earmarked for Treasury's capital purchase program, which allows the government to invest directly in banks in return for preferred stock.
In the past two weeks, the Treasury has indicated it is considering expanding the capital investment program to include insurers, whose investment portfolios have been hit hard as stocks and corporate bonds have plunged in value.
If TARP money is going to the FDIC-insured banking subsidiaries, then bankers should have few concerns, said ABA's Wayne Abernathy. Direct investment in their parent companies, however, "needs to be thought through carefully." Abernathy said. "The concept behind TARP is not to save sick institutions but to enable healthy institution to lend more."
It's still too early to tell whether government investments in banks are paying off. A Federal Reserve Board report issued Monday indicated that banks continued to tighten standards for all types of lending through the end of the third quarter. - Bill McConnell
See the Fed's 3Q survey on lending standards
Bill McConnell is The Deal's Washington bureau chief.
