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U.S. May Convert Bank Loans to Equity Share

The Obama administration may convert the U.S. government's existing loans to the 19 largest U.S. banks into common stock, reports say.

The Obama administration has determined it can avoid asking Congress for more money to shore up the nation's banking system by converting the government's existing loans to the largest U.S. banks into common stock, reports say.

Officials at the White House and Treasury Department now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, the

New York Times

reports.

Converting those loans to the 19 largest banks in the U.S. to common shares would turn the federal aid into available capital for a bank and give the government a large ownership stake in return, the

Times

reports.

The Treasury Department already has negotiated this kind of conversion with

Citigroup

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and has said it would consider doing the same with other banks, the newspaper notes.

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The conversions would come after the administration's so-called stress tests are completed in early May, the

Wall Street Journal

reports.

It is unclear how many of the 19 banks undergoing the stress tests might need more capital and of those how many could see such conversions, the

Journal

adds.

The tests, which subject banks' balance sheets to scenarios including escalating job losses and declining home prices, are a centerpiece of the Obama administration's financial rescue efforts.

The results will help officials divide banks into three categories: those that need more capital either from the government or private investors; those that are healthy; and those that are too weak to survive.

Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced, the

Times

reports.

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