Treasury Dep mulls taking ownership stakes in US banks

New York, Oct 9 (PTI) The U.S. Treasury Department is
considering taking ownership stakes in many American banks to
restore confidence in the troubled financial system after
measures taken so far failed to bring stability to it.

The department mulls injecting cash directly into banks
that request it. Such a move would quickly strengthen banks'
balance sheets and persuade them to resume lending, a media
report said, citing government officials.

In return, the law gives the Treasury the right to take
ownership positions in banks, including healthy ones.

The Treasury plan, still in preliminary stages, resembles
one announced Wednesday in Britain, the New York Times said,
adding under that plan, the U.K. government would offer banks
like the Royal Bank of Scotland, Barclays and HSBC holdings up
to USD 87 billion to shore up their capital in exchange for
preference shares.

It also would provide a guarantee of about USD 430
billion to help banks refinance debt.

The American recapitalisation plan, officials were quoted
as saying, has emerged as one of the most favoured new options
being discussed in Washington and on Wall Street. The appeal
is that it would directly address the worries that banks have
about lending to one another and to other customers.

The concern, the paper said, is that the bailout law
calls for limits on executive pay when capital is directly
injected into a bank. The law directs Treasury officials to
write compensation standards that would discourage executives
from taking "unnecessary and excessive risks" and that would
allow the government to recover any bonus pay that is based on
stated earnings that turn out to be inaccurate.

In addition, any bank in which the Treasury holds a stake
would be barred from paying its chief executive a "golden
parachute" package.

Treasury officials worry that aggressive government
purchases, if not done properly, could alarm bank shareholders
by appearing to be punitive or could be interpreted by the
market as a sign that target banks were failing, the report
said.

This new interest in direct investment in banks comes
after yet another tumultuous day in which the Federal Reserve
and five other central banks marshaled their combined
firepower to cut interest rates but failed to stanch the
global financial panic.

The gloomy market response, said the Times, sent policy
makers and outside experts on a scramble for additional
remedies to stabilise the banks and reassure investors.

There is no shortage of ideas, ranging from the partial
nationalisation proposal to a guarantee by the Fed of all
lending between banks, it added.