Oct 23 2008
Forced merger of US banks may be a part of bailout package
If the talks doing the rounds are to be believed then the much talked about US financial rescue package could in turn result in a major shakeout of the nation’s banks. A new round of mergers is expected to be on the anvil as the treasury department is said to have allocated a chunk of the rescue package towards those banks and financial institutions that are keen and have shown willingness to buy their weaker banking rivals. This motive clearly outlines the agenda of the US government who is gearing up not only to stabilize the shaken economy but also to reshape it and to give it a new direction.
This inclination of the Treasury department towards mergers shows that the treasury is not interested in buttressing weaker banks and other such financial institutions but would rather drive towards their consolidation. The banking and the investment sector is as it is badly shaken up by the ongoing financial turmoil and there are plenty such players operating in the market who are willing and open to the idea of putting themselves on the selling block. The potential roadblock in this direction is the absence of well capitalized buyers.
This is where the Treasury department hopes to play a role by channelizing funds towards banks which are big institutions are have strong financial fundamentals strengthening their base and working. The government plans to allow access to funds at favorable rates to these strong players with the aim of encouraging them to expand. Though aimed to cover the entire banking and investment sector this plan is not expected to be rolled out on a first come first serve basis, rather in depth study and analysis will form the basis of organizational selection.
It is note worthy to mention that the Federal Reserve and the Federal Deposit Insurance Corporation have been hugely burdened in the recent times by having to come all out to save banking institutions like Wachovia. But some analysts have rightly questioned this thought by putting across the point that as to how does the government plan to exert control over the investments that it intends to pump into banks to see that the investment is used for the same purpose for which it was provided.