President Bush announced Tuesday morning that the U.S. government would be taking a stake in the nation's nine largest financial institutions in a bid to help further shore up the banking system.
According to a report in the Wall Street Journal, under a plan cobbled together by the Treasury, the FDIC and the Federal Reserve, the government is prepared to buy equity stakes in on the president's short list include Bank of America (along with soon-to-be acquired Merrill Lynch), The Bank of New York Mellon, JPMorgan Chase, Citigroup, Wells Fargo, State Street, Goldman Sachs and Morgan Stanley.
Bush said the government is prepared to buy equity stakes in these companies in hopes of helping the institutions free up lending and spur economic growth. The funds for this purchase will come from the $700 billion bail out plan and will likely amount to $250 billion. The FDIC will also temporarily guarantee much of the debt issued by insured banks.
"This is an essential short-term measure to ensure the viability of America's banking system," Bush said in an address. "And the program is carefully designed to encourage banks to buy these shares back from the government when the markets stabilize and they can raise capital from private investors."
Also, Treasury announced it will apply compensation restrictions to company CEOs, CFOs and the next three most highly compensated executives down the corporate ladder. According to a statement, any firm participating in designated programs would be subject to such standards. The programs include the Troubled Asset Auction Program, the Capital Purchase Program and Programs for Systematically Significant Failing Institutions.