Regional banks to get Treasury's bailout funds

— -- In a bid to jump-start lending and get credit flowing from banks to every corner of the nation, more than a dozen regional banks on Monday said they will soon get billions of dollars from the Treasury Department as part of the financial bailout plan.

At least 16 regional banks have said they will take part in the second round of financing by selling preferred shares to the Treasury under the Capital Purchase Program of the Emergency Economic Stabilization Act of 2008. The infusions range from $3.55 billion for Capital One Financial of McLean, Va., to $186 million for First Niagara of Lockport, N.Y.

Almost all the banks that will receive the cash have relatively strong balance sheets and are not in dire need of capital, which led analysts to wonder whether the banks would use the money to immediately lend to prospective borrowers, or use it to make acquisitions. "The government is willing to give non-distressed banks capital in order to help the economy and to possibly buy distressed banks," says Jefferson Harralson, analyst at Keefe Bruyette & Woods.

In fact, news of the first regional infusion came with the announcement Friday that PNC Financial would get $7.7 billion, helping it acquire its struggling rival National City. "There's criticism suggesting that the government should not be financing the consolidation of the banking system, in effect, helping to choose the winners and losers," says Bob Meara, senior analyst at research firm Celent. "However, providing liquidity bolsters confidence in the U.S. banking system."

Monday's news helped ignite an early rally in regional bank stocks that faltered along with the broad market in a late-day sell-off.

However, the cash infusions also triggered criticism from smaller community banks, many of which haven't faced the kind of problem loans and defaults the larger banks have. Some community banks that would like access to the Treasury's cash are barred because they are private companies and can't issue preferred stock. "I believe it is critical for community banks to participate in the Treasury's cash program and get that money to Main Street," says Mike Washburn, CEO of Red Mountain Bank of Hoover, Ala., which has $350 million in assets.