The Treasury Department may take part ownership of many US banks in a bid to encourage lending and shore up confidence, the New York Times reports. Under the proposal, Treasury would give banks cash in exchange for ownership stakes. In theory, that would improve balance sheets and help banks lend to one another and to consumers. The danger is that it could feed the notion of failing banks, or punitive action, and further alarm shareholders.
The $700 billion bailout plan gives Treasury's Henry Paulson, who warned today that the "turmoil will not end quickly" and that more banks will fail, the authority to take such ownership stakes, even in institutions not in dire straits. The plan is gaining favor in Washington and on Wall Street, the Times notes, and resembles one announced by the British government today.