Tumblr Icon RSS Icon

Nationalization After All

By Matthew Yglesias  

"Nationalization After All"

Share:

google plus icon

If I’m reading this correctly, Timothy Geithner’s financial rescue plan actually might lead to bank nationalizations after all. The key thing is provision 1b of fact sheet:

geithner533_1.jpg

Capital Assistance Program: While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive “stress test” will have access to a Treasury provided “capital buffer” to help absorb losses and serve as a bridge to receiving increased private capital. While most banks have strong capital positions, the Financial Stability Trust will provide a capital buffer that will: Operate as a form of “contingent equity” to ensure firms the capital strength to preserve or increase lending in a worse than expected economic downturn. Firms will receive a preferred security investment from Treasury in convertible securities that they can convert into common equity if needed to preserve lending in a worse-than-expected economic environment. This convertible preferred security will carry a dividend to be specified later and a conversion price set at a modest discount from the prevailing level of the institution’s stock price as of February 9, 2009. Banking institutions with consolidated assets below $100 billion will also be eligible to obtain capital from the CAP after a supervisory review.

There’s clearly a desire here to avoid nationalization. A strong desire. But if the situation in the banking sector is as bad as the skeptics tend to think, this plan is going to end up with the government owning a substantial share in at least some large banks.

‹ Sarkozy: Freedom as Self-Determination

By Request: Five Days of Mail ›

By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.