The Wall Street Journal was out with an article on Monday stating that over 1,800 publicly traded banks would likely seek access to the Treasury Department’s rescue plan. While the total dollar figure being attached to the rescue plan is in excess of $700 billion, only $250 billion has been earmarked for bank recapitalizations. While this is a large sum, it is increasingly looking as if more money will be needed given the sheer number of banks that have not yet received government investments.
As we can see from the table below (via thestreet.com), nearly $170 billion has already been committed to supporting the institutions that control the majority of our banking system’s deposit base. However, this leaves only $80 billion in Treasury funds for the support of our country’s remaining 8,000 banks, most of which are private and state chartered.
In other words, it’s going to get messy from here on out as the Bush Administration will be forced to go back to Congress for more money, seriously reexamine the United States’ hybrid bank structure and be forced to develop an innovative method for delivering much needed capital to community banks.
These community banks will prove difficult to deliver capital to because they are either too small or unwilling to become public, yet they nonetheless serve a vital part in the American economy and will need government capital in order to ensure the success of the Bush Administration's bank bailout. A simple division of the $80 billion dollars remaining among the 5,000 private and public banks likely to be working towards a government injection shows that they would on average receive a mere $16 million dollars, which is a surprisingly low figure and a cause for concern.
Banks Receiving Government Investments
Amount (in billions)
Bank of America*
PNC Financial Group
Bank of New York Mellon
Marshall & Illsley
Source: The Financial Services Roundtable, KBW
*Includes Merrill Lynch (MER)**Hasn't decided to participate
As we saw in the forced National City (NCC) sale, banks that have taken government capital should be viewed as having received a seal of approval from the government and can be considered by investors as safe havens in the financial sector and are more likely than not trading at once in a generation prices, regardless of the weakness in the economy going forward.