The Treasury Department is clearly picking winners and losers as it decides which banks will receive equity injections and which will not. But what are the criteria? How come First Horizon National Corp. qualifies and National City Corp. doesn't?

"Treasury and regulators are figuring all this out as they go, in real time," said Jeff K. Davis, a principal at Wolf River Capital LLC.

The Treasury has said it would use using Camels ratings — which are not available to the public — to help sort the weak from the strong. It is also enlisting banking regulators to make the first cut. But the government has been anything but clear about how it is making these investment decisions.

"Of course, nobody outside of the government knows the methodology for sure," Mark Fitzgibbon, head of research at Sandler O'Neill & Partners LP, said in an interview Monday. "But my assumption is, if you've got a weak rating and you can't show that you're working your way of the woods yet, you probably aren't going to get Tarp money."

Tarp stands for Troubled Assets Relief Program, the $700 billion rescue Congress approved Oct. 3.

It is unclear what criteria the Treasury and federal regulators are using to decide which institutions receive a capital injection.

Last week the Treasury said interested banks must apply first to their primary federal regulator, which would then pass on a recommendation to the Treasury.

But banking regulators — aside from saying they want to limit the program to "healthy institutions" — have been reticent about how they are making their decisions.

Government officials have said that Camels ratings and whether a bank is involved in a merger or is raising capital from the private sector are factors in the process. But they have not explained how, and many observers have noted that Camels ratings can be 12 to 18 months old, depending on when a bank's last exam occurred.

One thing is increasingly clear: the government wants strong banks to use the money to take over struggling banks.

"I guarantee you these banks will get every morning from the government a menu of weak banks that Treasury thinks need to be sold," Brett Rabatin, an analyst at First Horizon's FTN Midwest Securities Research, said in an interview Monday.

Still, the government seems willing to help a bank that is struggling but can demonstrate that the worst is nearly behind it. Analysts say First Horizon is a case in point.

After five quarters of losses, Nat City showed few signs of returning to profitability, but First Horizon — which reported a $118 million third-quarter loss, its third straight quarterly loss — got approval Monday for $866 million under the Treasury's program, likely because it confirmed this month that it expects provisioning to begin tapering off early next year as the company continues to shed troubled assets.

First Horizon, of Memphis, reduced assets by roughly $2.7 billion in the third quarter and expects to cut another $1 billion to $2 billion this quarter.

In contrast, National City's earnings had deteriorated over the last 12 to 18 months, which may explain why the Cleveland company did not qualify for the program, and instead announced Friday that it had agreed to sell itself to PNC Financial Services Group Inc. The government gave PNC not only its allotment from the program but what Nat City might have gotten, for a total of $7.7 billion.

For First Horizon, "getting Tarp means that banks with large net losses and significantly shrinking balance sheets are not precluded from participating," a team of analysts at KBW Inc.'s Keefe, Bruyette & Woods Inc. wrote in a report Monday.

An investment banker closely tracking Tarp participation said in an interview Monday that he initially expected "a very clear and sharp divide" between institutions the Treasury considers strong and weak. But "I don't think that's necessarily the case anymore," this banker said on condition of anonymity.

On Monday, a long list of banking companies of varying sizes announced plans to sell stakes to the government, including BB&T Corp. in Winston-Salem, N.C., which last week touted itself as a beacon of strength when reporting a third-quarter profit. On Monday the company said it could use the $3.1 billion it plans to get under Tarp for an acquisition at a "bargain price."

BB&T said it was open to "strategic alternatives," including merger deals. Regions Financial Corp. in Birmingham, Ala., said it would get $3.5 billion under the program. The infusion "will enable us to expand lending and step up acquisitions," C. Dowd Ritter, Regions' chairman and chief executive, said in a press release Monday.

Should Mr. Ritter and others follow through with a consolidation push, gobbling up troubled banks, that would take "a lot of pressure off" regulators, Theodore Kovaleff, an analyst at Granta Capital Group LLC in New York, said in an interview Monday.

Fifth Third Bancorp was also among the banking companies to say it would capital under program. On Monday the Cincinnati company said it would get a $3.4 billion investment under Tarp. Last week it had said that securing an investment from the government would like allow it avoid having to divest noncore assets to shore up capital.

Bankers committed to Tarp say they are ready to participate in a consolidation wave.

When the Treasury announced the Tarp program last month, it said it had agreed to buy $125 billion in preferred stock in nine of the nation's largest banking companies, including Wells Fargo & Co., Bank of America Corp., and JPMorgan Chase & Co. The remaining $125 billion is allocated to smaller banks, and as of Monday afternoon the Treasury had about $90 billion left to invest.

"We've been told there's enough to go around," Allan Landon, the CEO of Bank of Hawaii, said in an interview after reporting a third-quarter profit Monday. He said he was still considering whether to take part; the deadline to apply for funds is Nov. 14.

In their report Monday, the Keefe Bruyette analysts said that most eligible companies will apply, and those turned down face the specter of downward "stock price pressure," because getting turned down would amount to a vote of no-confidence by the Treasury.

The government's selection process was clearly not obvious to Peter Raskind, Nat City's CEO. He said in an interview last Tuesday, three days before the PNC deal was announced, that his company was strong and "very well capitalized," and that he was preparing Nat City to move into next year as a stand-alone corporation. Meanwhile, James Rohr, PNC's chairman and CEO, said the Treasury's move to invest what could have been Nat City's share of the Tarp money into PNC "created a very financially compelling transaction."

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