U.S. to Take $250 Billion Stake in Banks

The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. unveiled a plan in which the government will buy preferred shares in a bid to shore up confidence in the reeling banking system.
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The federal government on Tuesday unveiled a sweeping plan to invest up to $250 billion in equity into U.S. banks, among other measures intended to shore up the debilitating crisis of confidence that has seized credit markets and sent equities plummeting.

Treasury Secretary Henry Paulson said nine major financial institutions have already agreed to participate in the voluntary program in which Treasury will buy

preferred shares

through funds raised the $700 billion


package Congress recently passed.

The same institutions also have agreed to a plan in which the Federal Deposit Insurance Corp. will temporarily guarantee the senior debt of all federally insured institutions and their holding companies, as well as deposits in non-interest bearing deposit transaction accounts in exchange for a greater supervision.

"This is an essential short-term measure to ensure the stability of the U.S. banking system," President George Bush said in a Tuesday morning press conference.

Treasury Secretary Henry Paulson,

Federal Reserve

Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair unveiled the measure in a separate press conference in Washington, D.C.

"These steps will ensure that the U.S. financial system performs its vital role of providing credit to households and businesses and protecting savings and investments in a manner that promotes strong economic growth in the U.S. and around the world," they said in a joint statement. "The overwhelming majority of banks in the U.S. are strong and well-capitalized. These actions will bolster public confidence in our system to restore and stabilize liquidity necessary to support economic growth."

The government is set to buy preferred equity stakes in

Goldman Sachs

(GS) - Get Report


Morgan Stanley

(MS) - Get Report


JPMorgan Chase

(JPM) - Get Report


Bank of America

(BAC) - Get Report

-- including the soon-to-be acquired

Merrill Lynch




(C) - Get Report


Wells Fargo

(WFC) - Get Report


Bank of New York Mellon

(BK) - Get Report


State Street

(STT) - Get Report

, the

Wall Street Journal

reports, citing people familiar with the matter.


reports the Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each.

This article was written by a staff member of TheStreet.com.