Paulson tells banks to lend new government capital

Treasury Secretary Henry Paulson said Monday that banks receiving investments from the government will be expected to loan out the money to help revive liquidity in the credit market.

The news came as the Treasury and other bank regulators released technical details of their plan to purchase up to $250 billion in preferred stock in healthy U.S. financial institutions.

“Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital. And we expect them to do so, as increased confidence will lead to increased lending,” Paulson said in remarks to reporters.

“This increased lending will benefit the U.S. economy and the American people,” Paulson said.

All financial institutions will be able to submit a single application form to their primary banking supervisor.

Paulson said nine major banks have agreed to participate, and “we have received indications of interest from a broad group of banks of all sizes.” The program is an investment, not an expenditure, he said.

“There is no reason to expect this program will cost taxpayers anything,” Paulson said.

The application process appears designed for quick execution and looks to avoid classic government bureaucratic delays.

There is a single application form for all institutions registering to participate in the plan.

It equires the applying firm to submit basic information like the amount of the perpetual preferred stock it wants to sell, as well as information regarding the amount of authorized but unissued preferred stock and common stock it has available for sale.

The deadline for application is Nov. 14. The Treasury said that it will process the applications as fast as possible but that times would vary based on several factors about individual institutions.

The Treasury also said it will announce approvals under the plan but will not disclose the names of any banks in which it declines to invest.

Moreover, the Treasury said that firms will be able to count as Tier 1 capital.

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