Fed Earmarks $250 Billion for Direct Deposit

By Pamela Mortimer

Government officials have announced that the decision on how to help crumbling financial institutions has been made. $250 billion dollars out of the recently passed $700 billion bailout deal will be used to purchase stakes in some of the nation’s largest banks. The money will also be used to guarantee a majority of new debt issued by banks that carry insurance.

President Bush was the first to make the announcement regarding the decision, followed an hour later by a joint press conference by Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair, and Treasury Secretary Henry Paulson. The joint news conference elaborated on the plan’s details.

"Clearly the time had come for a more comprehensive and broad-based solution," Bernanke said at the news conference. "Waiting too long to act has usually led to much greater direct costs of the intervention itself and, more importantly, magnified the painful effects of financial turmoil on households and businesses."

The Treasury has earmarked $125 billion for investing into the nation’s largest financial institutions, with the remaining $125 billion held back for other banks.

The largest banks and their investments are as follows: JPMorgan Chase and Citigroup - $25 billion each; Bank of America and Wells Fargo- $20 billion each, Goldman Sachs and Morgan Stanley will receive $10 billion each; and State Street and Bank of New York - $2-$3 billion each. Bank of America will also receive an additional $5 billion for its acquisition of Merrill Lynch; Wells Fargo will receive an additional $5 billion for its purchase of Wachovia.

The breakdown of how the remaining $125 billion will be split was not revealed although it could be used to invest in "thousands of smaller banks."

Officials stated that the program "will be available to qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities" as long as they sign up before 5 PM EST on November 14.

"Government owning a stake in any private U.S. company is objectionable to most Americans -- me included," Treasury Secretary Henry Paulson said. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable. When financing isn’t available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop."