Paulson Urges Banks to 'Deploy' Capital

Treasury Secretary Henry Paulson urged banks that plan to take part in the government capital initiative to "deploy, not hoard" their capital, as he announced the procedures for banks to apply to the program Monday.
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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

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Bank of America

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Wells Fargo

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Goldman Sachs

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, and

Morgan Stanley

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, 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



did not rule out making acquisitions with the equity they are set to receive.

The Treasury has received inquiries from banks of all sizes interested in the program and that "sufficient capital" has been allocated so that qualifying institutions can participate, Paulson said.

"Let me be clear that this program is not being implemented on a first-come, first-served basis," he said.

Once a bank's application for capital is accepted, the Treasury plans to announce the transaction within 48 hours. Bank applications that are denied will not be published.

"This efficient process -- with standardized forms and standardized review -- will encourage banks and thrifts of all sizes to participate in the program," Paulson said. "By so doing they will increase their capital base so that they can provide the lending necessary to support the U.S. economy as we work through this difficult period."

Paulson did not take any questions after his prepared remarks.