Bank of America Will Issue Loans with Government Billions, Repay Fed in Five Years
Banking NewsBank of America will use the $25 billion cash injection it is receiving from the U.S. Government to make business and consumer loans, bank CEO Kenneth Lewis told CBS’ 60 Minutes yesterday. He added the he expects Bank of America to repay the loans in no more than five years. Bank of America, based in Charlotte, N.C., is the second-largest bank in the United States.
Treasury Secretary Henry Paulson revealed the government’s plan last week to give $125 billion to nine of the Unites States’ largest banks. In return for the funds, the government will acquire ownership stakes in the banks.
The money is intended to thaw a currently frozen lending market in which consumers, small-businesses, and even Fortune 500 companies cannot get the credit they need to grow their businesses, create jobs, and in some cases, conduct daily business operations.
Consumers are also feeling the credit pinch. Many consumers are seeing the interest rates on their credit cards go up while their credit lines go down. And, even consumers with good credit are having the hardest time in American history getting approved for mortgages or auto loans.
While the government is not mandating that banks use the cash to issue new loans (they could, for instance, acquire smaller banks); loans are essentially what the money is supposed to be for. According to Bank of America’s Lewis it’s “the right thing to do”.
If the plan is successful, U.S. consumers and businesses should see credit become increasingly available over the next few months. It is unlikely, however, that lending standards will ever return to the levels they have been at over the last several years. That means that more Americans will have to learn to pay for more in cash and protect their credit rating to be able to quality for home and auto loans.
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