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The Fed
October 31, 2008

Will banks be pressured to aggressively lend out Fed capital infusions?

The Fed

"As political pressure mounts, at least a few banks are promising to use capital infusions from the federal government's bailout program to swiftly make new loans. But it might not be enough to offset the lending shortfall that is threatening the economy.

Deploying the flood of cash dispensed by the Treasury has been a contentious issue, following the agency's move earlier this month to pump $250 billion into financial institutions. Some banks initially said they didn't expect to quickly use the capital, leading lawmakers to question the effectiveness of the government's Troubled Asset Relief Program, or TARP.

Now, though, some banks are revving up plans to pour their new capital into loans. "We do expect to start deploying it almost immediately," said Doyle Arnold, chief financial officer of Zions Bancorp, a Salt Lake City lender that is slated to receive $1.4 billion through TARP. Two weeks ago, Mr. Arnold predicted the federal injections probably would have a muted impact on lending.

Zions, with $54 billion of assets and more than 500 branches, "basically shut down" its lending operations in the third quarter due to depleted capital levels, Mr. Arnold said. Its coffers replenished, Zions now plans to lend out "several hundred million dollars" by year's end. Next year, Zions expects to be able to make as much as $750 million worth of new loans each quarter.

Webster Financial Corp., a Waterbury, Conn., bank with $17.5 billion of assets, is waiting for the Treasury to approve its application for capital. When that happens, Webster will publicly vow "to lend every single dollar into the market," said Chief Executive James C. Smith.

Doing so is simply "the right thing to do," he said, not a response to outside pressure."

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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