In another attempt to loosen credit markets and restore confidence in the financial system, the Treasury Department is considering a plan to take ownership stakes in many U.S. banks, both healthy and troubled, according to a media report Wednesday night.
Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it, and the right to take ownership positions in those banks, the New York Times reported in its online edition in a story citing unnamed government officials.
Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending, the Times said.
The Treasury plan, still preliminary, resembles one announced on Wednesday in the U.K.
The American recapitalization plan, officials say, has emerged as one of the most favored new options being discussed in Washington and on Wall Street, according to the Times.
The gloomy market response to Wednesday’s globally coordinated interest rate cuts by central banks sent policy makers and outside experts on a scramble for additional remedies to stabilize the banks and reassure investors, the Times said.
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 Times said.
The idea is gaining support even among longtime Republican policy makers who have spent most of their careers defending laissez-faire economic policies, according to the report.