Paulson Urges Banks to 'Deploy' Capital

Treasury Secretary Henry Paulson is urging banks that plan to take part in the government capital initiative to "deploy, not hoard" their capital.

Paulson made the comments during a short prepared speech to address the standardized application process for banks looking to participate in the equity capital purchase program formally announced last week. The Treasury plans to invest up to $250 billion in the U.S. banking sector by purchasing preferred stock and warrants as part of the troubled asset relief program, or TARP.

"While many banks have suffered significant losses during this period of market turmoil, many others have plenty of capital to get through this period, but are not positioned to lend as widely as is necessary to support our economy," Paulson said on Monday in prepared remarks.

"This program is designed to attract broad participation by healthy institutions and to do so in a way that attracts private capital to them as well," he said. "Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital. And we expect them to do so, as increased confidence will lead to increased lending."

So far nine large banks including JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), Goldman Sachs (GS), and Morgan Stanley (MS), among others, have agreed to take part in the program. But the initiative is also to help regional banks and smaller players, as well.

The government is looking for banks to use the capital to start lending again -- and soon. But the money also could be used to fund acquisitions, as many financial institutions struggle to remain afloat given the unprecedented environment facing banks. Both JPMorgan Chase and Citigroup did not rule out making acquisitions with the equity they are set to receive.