The Treasury today unveiled details of its voluntary “Capital Purchase Program” aimed at buoying struggling banks and restoring the flow of credit to the financial system.
As part of the massive $700 billion bailout plan, Treasury will make $250 billion in capital available to U.S. financial institutions in the form of preferred stock.
Taxpayers will own shares in the companies involved and will be expected to be paid back with a “reasonable return,” but will also receive warrants for common shares.
Banks that sell shares to the government will in turn agree to a number of restrictions, including a ban on golden parachutes, and will be expected to ramp up loan modification efforts.
Treasury Secretary Henry Paulson said government ownership of private U.S. companies is “objectionable” to him and most Americans, but called the alternative of leaving businesses and consumers without access to credit “totally unacceptable.”
Nine “large financial institutions” have already pledged to participate in the program, likely facilitated by the Feds to alleviate any possible stigma attached to seeking aid.
While the Treasury didn’t name the banks involved, Businessweek said Chase and Citi would receive $25 billion each (the maximum limit), Bank of America and Wells Fargo $20 to $25 billion, Goldman Sachs and Morgan Stanley $10 billion each, and the Bank of New York Mellon and State Street $2 to $3 billion a piece.
Paulson stressed that the companies seeking aid are “healthy institutions” simply taking the steps necessary “for the good of the U.S. economy” by increasing their lending to consumers and businesses.
Qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies will be able to participate until November 14, 2008.