In another attempt to thaw the frozen credit markets, the Department of the Treasury is considering a recapitalization plan that would involve buying stakes in the country’s banks, according to published reports.
The plan is still in the preliminary stages, but would be similar to one announced in England yesterday, which involved the British government pumping $87 billion into its banks and providing backing to financial institutions to allow them to increase their total tier 1 capital by $43.2 billion (InvestmentNews, Oct. 8).
Treasury Secretary Henry Paulson signaled the potential American recapitalization plan yesterday during a news conference, saying the $700 billion Emergency Economic Stabilization Act approved last week by Congress gives the government more authority to strengthen financial institutions.
“We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size,” he said.
Financial advisers are open to the concept but want to see more information before endorsing the recapitalization plan.
“I think it would be really important to see how [the Treasury] gets in, but also how they get out [of having stakes in these banks],” said Joseph Labella, director of investments at Locust Valley, N.Y.-based Diefendorf Capital Planning Associates, which manages around $250 million in assets.
“The devil is in the details.”
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