Treasury to Offer Smaller Banks More Capital

By MAYA JACKSON RANDALL
WASHINGTON — U.S. Treasury Secretary Timothy Geithner on Wednesday told a group of community bankers that the Treasury Department plans to soon offer smaller banks more capital by reopening a key financial-rescue program.

The Treasury expects to receive billions of dollars in funds from banks paying back the taxpayer funds they received from the Troubled Asset Relief Program, and Mr. Geithner said those proceeds will enable Treasury to funnel additional taxpayer cash into banks with total assets under $500 million.

“Using the proceeds of the repayments, we expect to receive from some of the largest banks, we plan to re-open the application window for banks with total assets under $500 million under the Capital Purchase Program,” Mr. Geithner said during a speech at a bankers forum in Washington.

He added that Treasury plans to raise the amount of risk-weighted assets for which qualifying institutions can apply from 3% to 5%. Additionally, the new round of injections will be available for public and private corporations as well as subchapter S corporations and mutual institutions. Banks that have already received capital can reapply through an expedited approval process.

Treasury also plans to extend the deadline for small banks to form a holding company for the purposes of the Capital Purchase Program, the secretary said.

Mr. Geithner also said he will propose within a couple weeks a set of substantial steps to strengthen and simplify oversight of the financial system.

“Our system now is too complex,” Mr. Geithner said. The proposals would create “a cleaner, more simple, more consolidated oversight structure so there’s less opportunity for arbitrage,” he added.

Mr. Geithner said changes would involve more constraints on capital and leverage for bigger institutions.

On the outlook for the economy, Mr. Geithner said the financial system is starting to heal and concern about systemic risk has diminished.

But Mr. Geithner said he would support the creation of a separate fund to cover losses at institutions whose collapse could threaten the financial system. Some in Washington want to create a systemic risk regulator to oversee such firms.

The Treasury is pushing for authority to wind down nonbank financial firms. Asked about the fund, Mr. Geithner said such authority “requires a solution on the funding side.” He said the burden should be “born by those institutions in a level proportionate to their size.”

—Jessica Holzer contributed to this article.

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