Paulson to increase stakes in regional banks

Following the $700 billion bailout announced last month, US Treasury Secretary, Henry Paulson, has announced that the Treasury has new plans to finance purchases as part of a $250 billion program to cash into financial companies in order to increase the credit available to businesses.

Last week, the Treasury agreed to take stakes in nine firms including banking giants Citigroup Inc., Morgan Stanley and Bank of America Corp as part of a $125 billion backing.

Currently regional lenders are not in a position to lend freely amidst the economic downturn as unemployment is now at a five-year high and confidence and security are at record lows.

The plan will be put forward by the Treasury’s interim manager for the rescue program today when it will be announced shortly which institutions shall be the beneficiaries of the Treasury’s next action.

Paulson believes that the decision to buy shares in more lenders comes after some of the mid-tier institutions are facing large losses causing an estimated 4,000 jobs to be cut.

By putting cash into banks, the issue is no longer about changing the face of balance sheets but about purchasing mortgage assets in order to increase the security of weakened assets and place the banks in a more secure financial position.

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