US Injects More Capital Into Banks, Including PNC

Steve Liesman
CNBC Senior Economics Reporter

The US government is beginning to supply additional direct capital support to U.S. banks, with the first move coming as the Treasury Department purchased $7.7 billion of preferred shares and warrants from PNC Financial Services .

That new capital facilitated Pittsburgh-based PNC's purchase on Friday of National City, a troubled Cleveland bank, for $5.6 billion, by maintaining PNC's strong Tier 1 capital ratio.

Treasury officials told CNBC that approvals would be "ongoing" for the next few weeks and that announcements of any investments would be made within 48 hours. Private banks, however, are free to make their own announcements earlier if they choose.

A list of about 20 banks to receive capital injections in the next round could be announced as early as today, and Treasury is closely studying how it could give relief to bond and mortgage insurance companies under a $700 billion rescue package, Reuters reported, citing two sources familiar with the deliberations.

The direct equity purchase by Treasury is the second phase of its effort to shore up the banking system through $250 billion worth of direct capital injections.

In the first phase, Treasury supplied $125 billion to nine of the country's largest banks, institutions considered vital for maintaining the viable of the banking system.

That left an additional $125 billion for equity purchases in other banks. The money comes the from Congress' $700 billion rescue package.

See video at left for more on new bank capital coming from Washington's Troubled Asset Relief Program (TARP) and how to play the coming bank consolidations.

Nine of the largest U.S. banks were essentially arm-twisted last week into signing on for the first $125 billion in capital infusions in an attempt to remove the stigma that participating banks need the funds to survive.

Neel Kashkari, Treasury's interim manager for the rescue program, told lawmakers on Thursday that more banks are expected to receive capital infusions within a few weeks.

The Treasury on Monday began taking applications from U.S. banks interested in tapping into the remaining $125 billion in a government equity infusion program.

Treasury will not disclose banks that withdraw or are turned down.

Treasury said there is enough capital available to provide injections to all qualifying banks and that those firms interested must apply through their primary regulatory agency by Nov. 14.

The injections are designed to encourage healthy banks to boost their lending activities, which have fallen sharply as the housing downturn and subprime mortgage debacle created a ripple effect that froze global credit markets.

"Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital. And we expect them to do so, as increased confidence will lead to increased lending," Paulson said on Monday.

- Reuters contributed to this report.

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