WASHINGTON — The government is set to buy preferred equity stakes in a number of top financial institutions as part of its new comprehensive plan to tackle the credit crisis, according to people familiar with the situation.
It's unclear how much would be invested in each institution. The move is designed to remove any stigma that might come with a government investment.
Not all of the banks involved are happy with the move but agreed under pressure from the government.
The dramatic moves are part of a new wide-ranging effort to restore confidence to the battered banking system, following similar moves by European governments that sent global stock markets soaring.
The initiatives will likely supersede many of the government's previous efforts. They are being formulated jointly by the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp., and ensure that the U.S. banking sector will be tied to the federal government for years to come.
One central plank of these new efforts is a plan for the Treasury to take approximately $250 billion in equity stakes in potentially thousands of banks, according to people familiar with the matter, using funds approved by Congress through the $700 billion bailout bill.
In addition, the FDIC is expected to temporarily extend its backstop from bank deposits to new funds raised by banks and thrifts for three years. That would be an aid to companies that have had a hard time raising capital without government assistance.
The FDIC is also expected to temporarily lift the insurance limits for non-interest bearing bank deposit accounts. This would extend beyond the $250,000 limit per depositor that lawmakers agreed on two weeks ago. The shift brings U.S. policy more in line with other countries that have offered blanket deposit insurance to try and prevent customers from withdrawing large sums of money from financial institutions.
Treasury Secretary Henry Paulson called top U.S. banking heads to a meeting Monday in Washington, people familiar with the matter said. Believed to have attended were executives including Ken Lewis, CEO of Bank of America Corp., Jamie Dimon, CEO of JPMorgan Chase & Co. Inc., Lloyd Blankfein, CEO of Goldman Sachs Group Inc.; John Mack, CEO of Morgan Stanley; Vikram Pandit, CEO of Citigroup Inc.; and Robert P. Kelly, CEO of Bank of New York Mellon Corp.