Bankers are torn on whether to participate in the Treasury Department's Capital Purchase Program, and they are fast running out of time to make the decision.

In view of several issues that need to be addressed, the Treasury should grant an immediate extension of the filing deadline.

As things stand, the best answer for banks that do not have a need for the capital may be to decline the offer unless the Treasury makes changes to minimize the political risks.

Bankers should focus on Section 5.3 of the Standard Terms of the Treasury Purchase Agreement, which states that the Treasury "may unilaterally amend any provision of this agreement to the extent required to comply with any … changes … in applicable federal statutes."

This provision appears to allow Congress to do virtually anything it wants to banks that participate in the program. For example, dividends on the preferred stock the Treasury buys could be increased, and/or a higher level of warrants could be required. Limitations on salaries and bonuses could be imposed. Increases in lending could be mandated, including loans to certain economic sectors or demographic groups, and foreclosures could be halted.

These are not far-out hypothetical examples. Each has been the subject of debate from the day the program was announced.

Section 5.3 is unconscionable. If bankers included a similar clause in loan agreements, several things would likely happen. First, no borrower, except for the most desperate, would sign up for a loan. Second, the courts would rule the provision is not enforceable. Third, Congress would enact legislation prohibiting the practice.

I suspect that many boards would not allow their banks to enter into a contract of this sort. Moreover, the idea behind the program is to get banks to go to the private capital markets as quickly as possible. Private firms might well be reluctant to invest in banks that are exposed to the political winds under Section 5.3.

I believe the Treasury should delete Section 5.3. At the very least, the contract ought to provide that if the Treasury made changes to the deal terms, banks would have the right to void the deal and return the money within a reasonable period.

Another important change should be made. The Treasury acknowledges that it is picking winners and losers, which I believe is a highly inappropriate role for the government.

National City had its CPP application denied and promptly entered a deal to sell itself to PNC (which got Nat City's capital allocation under the program). I would be fine with that outcome if it resulted from a voluntary decision by both companies, but I have a lot of problems with a shotgun marriage.

The Treasury has not been forthcoming on the tests being applied to the applications, but it appears that banks are not being approved unless they can demonstrate their viability in the absence of the capital infusion. That standard is too high and will likely force a lot of companies out of business needlessly. I believe an applicant should be approved if it can demonstrate its viability after the capital infusion.

Our nation needs a system of healthy community and regional banks, and the heavy hand of government should not be used to promote the destruction of that system. The CPP should try to save banks when possible and should be neutral on consolidations except when necessary to avoid failures.

Finally, there is the issue of lending. The major premise of the program, which I support, is that adding $250 billion of capital to banks will increase lending capacity by $2 trillion or more. Though we should not expect bankers to lend the entire amount in the face of a weak and uncertain economy, we have a right to expect a significant increase in lending by banks that participate in the program.

I believe the Treasury should consider requiring that participating banks increase loans by a reasonable multiple of their capital infusion within one year, unless the bank is directed by its regulator not to do so.

The CPP is a much better use of taxpayer money than the purchase of bad loans contemplated in the original bailout bill. With some important changes, it could prove to be a very successful program at no cost to taxpayers.

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