Government Bailout Plan Funding Continues

On Friday, the U.S. government started to inject capital into some banks by helping to finance a $5.2 billion takeover of National City Corp bank by PNC valued at $2.33 per share.

The Treasury Department plans to provide funds for 20-22 additional lenders as part of its next phase of a $250 billion bank recapitalization program. The Treasury Department has already committed approximately $125 million to 9 of the country's largest banks in exchange for preferred bank shares.

The Treasury Department has also decided to let banks announce the government assistance plans which will be staggered instead of the Treasury providing a complete list of bank recipients to ease investors.

Regions Financial Corp, First Horizon National Corp, PNC, Valley National Bancorp Capital One Financial Corp and SunTrust Banks will also receive government funding.

The Treasury Department is also determining how to give assistance to insurers under its Troubled Asset Relief Program (TARP) also known as the Paulson Proposal which became law on October 3, 2008. The program is run by the Treasury Department's newly formed Office of Financial Stability Department. The TARP has 7 components:
1) Mortgage-backed securities purchase program which identifies which troubled assets to purchase, who to buy them from and how to buy them.

2) Whole loan purchase program which will work with bank regulators to identify which types of loans to purchase first, how to determine their value and how to buy them.

3) Insurance program which will determine how to insure mortgage-backed securities and whole loans (residential mortgage loan that is owed by one company sold to one or more investors who pays the seller a servicing fee).

4) Equity purchase program is a standardized voluntary program to purchase equity in a various financial institutions to encourage participation from healthy financial institutions.

5) Homeownership preservation consists of programs that purchase mortgages and mortgage-backed securities to help homeowners stay in their homes.

6) Executive compensation is a law defined requirements regarding executive compensation for firms that participate in the TARP.

7) Compliance is a law that establishes oversight and compliance structures, including establishing an Oversight Board, on-site participation of the General Accounting Office and the creation of a Special Inspector General, with strict reporting requirements.