THE BASIS POINT

Preview of Geithner Bank Plan For Monday, Feb. 10

Treasury Secretary Tim Geithner will announce his bank recovery plans Monday. Speculation has ranged from an RTC-like entity to buy illiquid assets from banks helping them shore up balance sheets and get back to core activities (the original goal of the TARP) to directly investing in banks to recapitalize them (the way TARP phase 1 was actually implemented)—only this time it would come with very specific parameters for banks that they have to lend the money for specific purposes and executive compensation would be severely limited.

The most likely scenario is a combination of TARP capitalization using the remaining $350b of the original $700b, and a bank guarantee program similar to what Citi and BofA have already gotten, where Treasury backs but doesn’t buy illiquid assets. This is thought to be cheaper. Treasury could also use a third measure of purchasing preferred bank stock that would convert to common stock later.