Treasury To Invest $250B In U.S. Banks

The U.S. Treasury announced Tuesday it will inject $250 billion into the nation’s banks to restore confidence in the financial system, including an injection of $25 billion into Citigroup, J.P. Morgan Chase and Bank of America respectively. (NYT)

The announcement comes a day after U.S. Treasury Secretary Henry Paulson told Wall Street’s largest banks they would have to accept capital injections in the form of senior preferred equity stakes for the good of the American financial system.  Wells Fargo will also receive $25 billion as part of the deal.  Meanwhile, the U.S. Treasury will take $10 billion stakes in Goldman Sachs and Morgan Stanley, and inject roughly $3 billion into Bank of New York Mellon and State Street respectively.  It will apportion the remaining $125 billion among thousands of small and midsize banks.

Paulson said the government will also guarantee new debt issued by the banks for up to three years in an effort to encourage interbank lending.  In conjunction, the Federal Deposit Insurance Corp. will provide guarantee all noninterest-bearing deposit accounts through 2009, and the Federal Reserve will expand a previously announced commercial-paper funding program.

Speaking at press conference Tuesday, Paulson called the measures regrettable but necessary. “The alternative of leaving businesses and consumers without access to financing is totally unacceptable,” he said.

The U.S. proposal follows similar government plans announced Monday across Europe.

Sources:

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