Treasury Pays $33.56B to 21 Banks

The government said Monday it has supplied $33.56 billion to 21 banks in a second round of payments from the $700 billion rescue program, and announced a deadline for another 3,800 banks to apply for funds.

The Treasury Department has announced that it is supplying $33.56 billion to 21 banks -- including...

The Treasury Department has announced that it is supplying $33.56 billion to 21 banks -- including Capital One Financial Corporation, SunTrust Banks, Inc. and U.S. Bancorp -- in a second round of payments from the $700 billion rescue program. Treasury Secretary Henry Paulson said last week that the government was abandoning its initial plans to buy troubled assets from banks and is instead concentrating on buying more shares of bank stocks.

(Getty Images/AP Photos)

The Treasury Department said a category of privately held banks will have until Dec. 8 to apply for the government to purchase shares of their stock as a way to bolster their balance sheets. The deadline for the larger publicly traded banks was Nov. 14.

The new Dec. 8 deadline will apply to about 3,800 banks that are so-called C-Corps institutions for the part of the tax code that applies to them. Another 2,500 S-Corps institutions also will be able to apply for money, but Treasury has not set the deadline for their applications.

The new deadline was announced as Treasury confirmed a second round of government stock purchases that follow the initial $125 billion it allocated to nine of the country's largest banks. The rescue program now has earmarked payments of $158.56 billion to banks.

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Treasury Secretary Henry Paulson announced last week the administration was abandoning the initial centerpiece of the rescue program, the purchase of troubled mortgage-backed securities from banks in an effort to bolster their balance sheets.

That was the only program Paulson mentioned as Congress debated the rescue package, which was approved on Oct. 3. However, Paulson later said the severity of the financial crisis made him realize it would take too long to get the troubled asset program into operation.

In its place, he announced on Oct. 14 that the government would buy shares of bank stock as a way to quickly inject fresh capital into the institutions.

He pressured nine of the largest banks to participate in the program during an Oct. 13 meeting at the Treasury Department, arguing that they should go along with the idea to remove the stigma other banks might feel in getting money from the government.

The rescue program has drawn a significant amount of criticism from lawmakers who have objected to the sudden switch in emphasis and what they see as a lack of restrictions on the funds. The critics contend that banks can simply hoard the fresh capital or use it to pay dividends to their shareholders or acquire other institutions rather than using it to boost their lending.