The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Nationalize to privatize: US considers taking equity stakes in the banks

One option presented by Euromoney last week as an alternative to Paulson's US bail out plan included using public money to recapitalise the banks directly by taking equity stakes. The Treasury secretary now seems to be warming to this idea.

It's not too late to enact a better plan than the one the Treasury has put on the table. Peter Lee looks at alternative strategies that might prove sharper than Paulson's bailout plan.   

If the federal government believes that it must recapitalize the banking system, then it should do so directly by investing equity in the banks. Buying troubled assets at above market prices achieves much the same thing – it hands capital to the banks and transfers risks of loss to the public purse. Surely there is no need to make things more complicated than they need be by creating a false market in hard-to-value securities.

 

Having urged Congress to pass Tarp in September with warnings of financial meltdown if it did not, Paulson was forced to admit on October 8 just how unprepared the US Treasury is to implement it. He says: “We expect it will be several weeks before our first purchase.” In the meantime, he points out that the Emergency Economic Stabilization Act empowers the Treasury to “inject capital” as well as to buy bad assets from banks and provide guarantees. “We will use all of the tools we’ve been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.”

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree