Regional Banks May Benefit From Equity Plan

"There are capital prohibitions," Patten says. "The primary use of this equity injection is to stabilize the industry, to remove the fear of who is going [under], to add liquidity so that banks can start lending again."

That said, Patten acknowledges that one of the byproducts of the capital plan in the next two years will be to allow for stronger banks to acquire the weaker ones. But, at least in the near term, "that capital is meant to stay on the bank's balance sheet," he says.

Regional banks will also directly benefit from the FDIC's decision to guarantee short-term debt and temporarily back non-interest bearing deposit accounts, "which are normally larger valued business accounts, improves the perceived safety within the industry, especially those banks with high amounts of such funds," writes Oppenheimer analyst Terry McEvoy.

The moves by the Treasury and FDIC to alleviate the ongoing pain in the financial sector are notable and will likely result in a "reduction in the pace of negative rating actions" by Moody's Investor Services, due to the boosted capital levels at the banks. Still, analysts at the ratings agency do not expect that "these programs will provide a full resolution of the challenges facing the U.S. banking sector," according to an industry note.

"Poor operating results are expected at least through the balance of 2008 and well into 2009, with contraction of credit flows, both in response to recessionary condition and to improve bank balance sheet quality, affecting revenue and pre-provision profitability," Moody's says. "Further, problem assets will take time to work through the system and will provide a drag on bottom-line earnings for some time to come."

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