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U.S. May Convert Banks Bailouts to Equity Share
By EDMUND L. ANDREWS
WASHINGTON President Obamas top economic advisers have determined that they can shore up the nations banking system without having to ask Congress for more money any time soon, according to administration officials.
In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the governments existing loans to the nations 19 biggest banks into common stock.
Converting those loans to common shares would turn the federal aid into available capital for a bank and give the government a large ownership stake in return.
While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.
The Treasury has already negotiated this kind of conversion with Citigroup and has said it would consider doing the same with other banks, as needed. But now the administration seems convinced that this maneuver can be used to make up for any shortfall in capital that the big banks confront in the near term.
Each conversion of this type would force the administration to decide how to handle its considerable voting rights on a banks board.
Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them....