Washington: The government said on Monday it has supplied $33.56 billion to 21 banks in a second round of payments from the $700 billion rescue program.
The Treasury Department confirmed the second round of government stock purchases designed to bolster the balance sheets of the nation’s banks to combat the worst financial crisis in more than seven decades.
The new payments follow an initial $125 billion designated for nine of the country’s biggest banks. The rescue program has earmarked payments of $158.56 billion with officials working to get more payments out to banks in coming weeks.
Treasury Secretary Henry Paulson announced last week the administration was abandoning the initial centerpiece of the rescue program, the purchase of troubled mortgage-backed securities from banks in an effort to bolster their balance sheets.
That was the only program Paulson mentioned as Congress debated the rescue package, which was approved on 3 October. However, Paulson said that the severity of the financial crisis made him realize it would take too long to get the troubled asset program into operation.
In its place, he announced on 14 October that the government would buy shares of bank stock as a way to inject fresh capital into the institutions quickly.
He pressured nine of the largest banks to participate in the program during an 13 October meeting at the Treasury Department, arguing that these institutions should go along with the idea in order to remove the stigma other banks might feel in getting money from the government.
The rescue program has drawn a significant amount of criticism from lawmakers who have objected to the sudden switch in emphasis, what they see as a lack of restrictions on the funds, which means banks can simply hoard the fresh capital or use it to pay dividends to their shareholders or acquire other institutions rather than using it to boost their lending.
Paulson and Federal Reserve Chairman Ben Bernanke were scheduled to testify before the House Financial Services Committee on Tuesday to answer questions that have been raised about the bailout program.
The Treasury announcement on Monday said the largest stock purchase in the second round was $6.6 billion paid to US Bancorp of Minneapolis. The smallest stock purchase in the second round was $9 million paid to Broadway Financial Corp. of Los Angeles.
Many of the banks in the second group of 21 had already announced that the government was purchasing stock once they had reached preliminary agreements.
Treasury does not make any announcement until after the final legal documents are signed, a process that can take a month from when the preliminary agreements are reached.
The deadline for banks with publicly traded stock to apply for funds was Friday. However, Treasury has said it will extend the application period for some 6,000 banks which do not have publicly trade stock because Treasury is still working on a modified application form for these institutions.
The Treasury noted that the $10 billion scheduled to be paid to Merrill Lynch & Co. has been deferred pending the completion of that company’s merger with Bank of America Corp.