Rescue fund likely to induce bank takeovers

In determining which banks will receive part of the $250 billion rescue plan, the Treasury announced it will “look very favorably” on healthy institutions making an acquisition. Although the plan is supposed to bolster better lending practices, the money will probably foster consolidation, with some banks already reporting they intend to use the funds for acquisitions, according to the Wall Street Journal.

Those acquisitions will prove to be controversial, however, as Treasury Secretary Henry Paulson has repeatedly said the government’s funding is intended to be used to restore confidence in the banking sector, allowing the banks to go back to better lending practices and encouraging investors.

“Our purpose is to increase the confidence of our banks, so that they will deploy, not hoard, that capital,” Paulson said on Monday. Taxpayers would essentially be “footing the bill” the Journal says. Acquisitions within the banking industry would be less of a boost to the economy than would better loan practices.