You are here:HomeNews CenterInsurance News2008The Bailout Expands: Treasury to Take Stakes in Insurance Firms

The Bailout Expands: Treasury to Take Stakes in Insurance Firms

The U.S. Treasury Department said on Friday October 24 that part of the $700 billion approved by Congress to bail out the nation's financial system...
October 29, 2008

The U.S. Treasury Department said on Friday October 24 that part of the $700 billion approved by Congress to bail out the nation's financial system may be used to buy troubled assets of insurance companies and bolster their balance sheets with cash infusions, despite the fact that the firms are not in immediate danger. A formal announcement is expected later this week.

The shape of the $700 billion plan has changed repeatedly since Treasury Secretary Henry Paulson introduced it last month as an effort to rescue banks by buying their troubled mortgage-related assets. That original mandate has now been pushed aside by a plan to take equity stakes in banks, and now in insurance companies. Other businesses are lobbying to be included.

The government's expanded power to choose winners and losers in the crisis was illustrated when the Cleveland-based bank National City Bank was forced to sell itself when regulators turned down its request for a Treasury investment, after deciding the firm was too weak to save, according to people familiar with the matter. Instead, the Treasury gave $7.7 billion to PNC Financial Services Group to help buy National City. In doing so, it did not require that the money be used for new lending -- the stated purpose of the government plan when it was approved last month. PNC, which has been relatively untouched by the mortgage crisis, would become the fifth-largest bank in the country by deposits.

Such moves serve to reduce the number of financial services players, as opposed to ensuring continued broad competition in the marketplace.

Bailout Expands to Insurers (Washington Post 10/25/08)