- The Washington Times - Monday, February 23, 2009

WASHINGTON (AP) — Federal regulators pledged Monday to do all they can to shore up the struggling U.S. banking system and said they will launch a revamped program to inject fresh capital into financial institutions this week.

The Treasury Department, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Office of Thrift Supervision and the Federal Reserve jointly issued the statement amid growing concern that some of America’s biggest banks may need additional assistance to survive the fallout from the worst financial crisis since the 1930s.

The statement did not name any specific banks or respond to reports that the government was considering increasing its ownership of Citigroup Inc.

The White House just last week downplayed persistent speculation that some banks could be effectively nationalized by the federal government.

RELATED STORY: Report: Gov’t mulls larger stake in Citi

“A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery,” the regulators said. “The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses.”

A revamped program, announced by Treasury Secretary Timothy Geithner earlier this month, to plow federal money into banks in return for giving the government ownership stakes will start Wednesday.

Regulators provided some details on that program Monday.

“Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory,” the regulators said.

But when asked about reports that the government was considering increasing its ownership of Citigroup, Treasury spokesman Isaac Baker said the department did not comment on conversations with specific banks.

“We’ve made clear that we will do what is necessary to strengthen and stabilize the financial system so that it can provide the credit necessary to support economic recovery,” Baker said in a statement.

The government is open to considering a request to convert preferred shares purchased as part of its $700 billion rescue program into common stock “if the institution and its regulator believe it would promote the long term stability of that institution and we believe it’s in the best interest of long term stability of our economy and financial system,” Baker said.

The Wall Street Journal reported late Sunday that Citigroup was in talks with federal officials over the possibility of the government expanding its ownership of the struggling bank to as much as 40 percent of its common stock. The newspaper said bank executives hope the stake will be closer to 25 percent.

Later Monday, Geithner will join President Barack Obama and other guests at a fiscal responsibility summit at the White House to discuss how to curb a burgeoning federal deficit laden with Social Security, Medicare and Medicaid obligations.

AP Economics Writer Martin Crutsinger contributed to this report.

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