Feds Hold Off Naming New Bank Investments

Updated from 4:48 p.m. EDT.

Regulators have decided not to release the name of banks that have been approved to receive capital from the government, but to allow companies to report individually, according to a source familiar with the situation.

The Treasury Department was first prepared to release a list of nearly two dozen banks who will receive funds from its $250 billion authorization to inject capital into the financial sector as early as 11 a.m. on Friday. However, it reversed course to avoid "creating winners and losers in the market," according to the source.

The announcement would have been a positive sign for those who make the list, because their financial state is strong enough to qualify for the program, the source says. On the other hand, those not included may have been seen as weak, and could have faced negative sentiment from customers, counterparties and investors.

That was evidenced by the deal PNC ( PNC) reported on Friday to acquire National City ( NCC) for $5.58 billion, while receiving $7.7 billion in federal funds in exchange for preferred equity. The government rejected Nat City's proposal to receive funds, forcing it into the hands of PNC, The Wall Street Journal reported Friday.

The list was expected to include a number of other regional banks in the second round of the Treasury Department's $250 billion plan to buy preferred equity stakes with funds from the troubled asset relief program, or TARP. An initial $125 billion was allocated to nine of the largest U.S. banks, including Citigroup ( C), JPMorgan Chase ( JPM) and Bank of America ( BAC). Paulson is seeking to halt the freeze of credit to businesses and households.

Birmingham, Ala.-based Regions Financial ( RF) earlier this week said the government had accepted its application to be part of the program.

Allowing banks to report receipt of government investments individually comes with a few kinks. The Emergency Economic Stabilization Act of 2008 requires that the Treasury make public which banks receive funds within 48 hours of a deal.

"What we don't know," says the source, "is when that clock starts ticking -- when Paulson hangs up the phone with the CEO or when the money is delivered, which is weeks from now."

If the latter, it would give banks more leeway in deciding when to go public with their status, but also add mystery to a bear market in which uncertainty has amplified its decline. Since language in the bill is vague, regulators are considering the pros and cons of both options, though the source doesn't expect any news to come out over the weekend.

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