Financial Reform Watch

Treasury Looks at Matchmaking Banks

Reports in the media today indicate that the Treasury Department is considering using part of the $250 billion from the initial tranche of financial rescue money to support acquisitions by stronger banks of weaker ones. In retrospect, there was a foretelling of this strategy in the announcement of the initial round of recapitalization transactions with the "big 9" institutions. At that time, Treasury announced that of the $25 billion given both to Bank of America and Wells Fargo, a $5 billion portion in each case was to support their recent acquisitions.

This new emphasis on restructuring the banking system raises some important questions about how deep the Treasury Department plans to go in assisting banks farther down the food chain. On Monday, Secretary Paulson indicated that all "qualifying" regional and community banks would receive capital under the recapitalization program—implying that assistance would not be limited due to a lack of available funds. At the same time, however, Treasury has made it clear that not all applications for capital infusion will be accepted.

Adding the emphasis on restructuring the industry raises the question of whether Treasury is going to start picking winners and losers. If they do, the power of Washington over the banking system would appear to be even stronger than many had contemplated under this program.

In other news this morning, the Treasury Department announced the selection of PricewaterhouseCoopers LLP and Ernst &Young to help with the implementation of the Troubled Asset Relief Program (TARP). Treasury said in a release that the firms will "help the Department with accounting and internal controls services needed to administer the complex portfolio of troubled assets the Department will purchase, including whole loans and mortgage backed securities." The contracts will go through September 30, 2011. Treasury valued the PricewaterhouseCoopers contract at $191,469.27 and the Ernst & Young contract at $492,006.95.

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