The federal government might help shore up non-bank financial institutions by working with other entities.
Treasury Secretary Henry Paulson discussed that possibility today during an update on the Bush administration’s financial rescue efforts.
“We are designing further strategies for building capital in financial institutions,” Paulson said.
One solution could be to make Troubled Asset Relief Program funds stretch further by “attracting private capital, potentially through matching investments,” Paulson said.
The matching program could meet the “capital needs of non-bank financial institutions not eligible for the current capital program,” Paulson said.
But “broadening access in this way would bring both benefits and challenges,” Paulson warned. “Non-bank financial institutions provide credit that is essential to U.S. businesses and consumers. However, many are not directly regulated and are active in a wide range of businesses, and taxpayer protections in a program of this sort would be more difficult to achieve.”